* FTSEurofirst 300 retreats from highs hit on Thursday
* Telefonica falls after Q1 profits miss forecasts
* Prospect of new ECB stimulus keeps some traders bullish
By Tricia Wright
LONDON, May 9 European shares retreated on
Friday as a disappointing business update from telecoms group
Telefonica sobered the mood from a rally the previous
The pan-European FTSEurofirst 300 index, which on
Thursday hit a 2014 peak of 1,359.07 points that marked its
highest level in around six years, closed down 0.3 percent at
Shares in Spain's Telefonica fell 2.6 percent after
the company posted a 23 percent fall in first-quarter net
profits, missing market expectations.
Energy services group Petrofac slumped by 15.2
percent after it issued a profit warning.
Around two-thirds of companies listed on the pan-European
STOXX Europe 600 index have posted first-quarter
updates so far. Half of them have missed consensus earnings
forecasts, according to Thomson Reuters StarMine data.
Some investors had hoped strong earnings that would drive
any further gains in share prices, with valuations now sitting
at bloated levels after a bumper 2013.
"PEs (price/earnings ratios) can only expand for a certain
amount of time until investors say okay, right, we need to see
something delivered, and this earnings season ... has been a bit
disappointing," James Butterfill, head of equity strategy at
The STOXX Europe 600 trades on a 12-month forward PE of 14.1
times, against its 10-year average of 11.9 times, Thomson
Reuters Datastream shows.
Christopher Mellor, equity strategist at London-based
Sunrise Brokers, said these signs of weak corporate results were
leading his firm to back an investment stance favouring bonds
"After 18 consecutive months of a pro-equity signal, our
market timing model has now moved to a pro-bond stance," said
Terry Torrison, managing director at Monaco-based McLaren
Securities, expected European equity markets to drift before
pushing higher in the second half of 2014, buoyed by
expectations that the European Central Bank will take new steps
to support the region's economic recovery.
ECB President Mario Draghi said on Thursday the central bank
was ready to take policy action next month if updated inflation
forecasts merited such a move.
"In the short term we may drift, but I'm still bullish on
the second half of this year. At some point, Draghi is going to
come up with something," said Torrison.
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today's European research round-up
(Additional reporting by Sudip Kar-Gupta and Francesco Canepa;
Editing by Larry King)