March 14, 2018 / 8:44 AM / a year ago

Italian stocks, banks weigh on European shares; Adidas shines

LONDON/MILAN (Reuters) - European shares dipped on Wednesday as strong results from Adidas and robust mining stocks were more than offset by weak banks and a drop in Italian stocks over fresh political jitters.

The German share price index, DAX board, is seen at the stock exchange in Frankfurt, Germany, March 14, 2018. REUTERS/Staff/Remote

Italy's FTSE MIB .FTMIB index fell 1.1 percent, turning lower after right-wing leader and aspiring prime minister Matteo Salvini reiterated his party's view that the euro was a flawed currency. He also said he was open to forming any sort of coalition government as long as it did not include the Democratic Party.

His remarks, which brought back the focus on Italy’s inconclusive election outcome, hit Italian government bonds and sent the country’s banking stocks .FTIT8300, which are seen as a proxy for political risk given their big sovereign bond holdings, down 1.4 percent. Europe’s banking index .SX7P fell 1 percent.

The pan-European STOXX 600 however managed to limit losses to 0.2 percent, also weighed by a early losses on Wall Street, while Germany's DAX .GDAXI added 0.1 percent, lifted by a double-digit gain in German sports fashion company adidas (ADSGn.DE).

Adidas jumped 11.2 percent after announcing a share buyback of up to 3 billion euros and lifting its 2020 profitability target.

Berenberg analysts said strong sales growth surprised the market after “a lot of chatter” about the stock.

“Despite the wide-ranging concerns, Adidas has delivered a good set of results,” said Berenberg’s Zuzanna Pusz, adding that the share buyback program showed Adidas’ focus on shareholder returns.

Technology stocks weighed on the STOXX after sources said U.S. President Donald Trump was threatening to impose tariffs on up to $60 billion of Chinese imports, targeting tech and telecommunications in particular.

“We have got some protection in portfolios, which is a nod to the fact we think sentiment is totally overrun and valuations are very high,” said Rory McPherson, head of investment strategy at Psigma Investment Management.

“Clearly the potential trade war would cause us to ramp up that protection, but at the moment we think it’s a tail event.”

Basic resource stocks .SXPP climbed 0.9 percent after data showed Chinese industrial production expanded at a much faster pace than expected.

Zara owner Inditex (ITX.MC) rose 3.8 percent, reversing earlier losses as investors cheered strong online sales growth and Chief Executive Pablo Isla said margins should hold up this year. The stock initially fell after the company released results and proposed a lower than expected dividend

German chemicals firm Symrise (SY1G.DE) tumbled 5.2 percent after 2017 results disappointed the market with slow margin growth.

Peer Brenntag (BNRGn.DE) also dropped after results.

UK insurer Prudential (PRU.L) was a notable gainer, up 5 percent as investors cheered its plan to spin off its British and European business.

Top faller was Belgian postal service Bpost (BPOST.BR) which dropped 22 percent after delivering a weak profit guidance for 2018.

German online advertising firm Axel Springer (SPRGn.DE) tumbled 7.3 percent after Berenberg analysts cut their rating on the stock to “sell”, saying the company was not delivering as much as digital peers.

Psigma’s McPherson has a neutral position on European equities and slightly underweight on Britain, while his biggest underweight is U.S. stocks. “None of them are screamingly cheap,” he said, adding U.S. stock valuations are much higher.

Analysts expect earnings to grow around 20 percent this year in the United States, while expectations for European earnings growth are around half that, Thomson Reuters I/B/E/S data shows.

“To deliver on those earnings is much more achievable,” said McPherson.

Reporting by Helen Reid; Editing by Tom Pfeiffer and Alison Williams

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