February 8, 2019 / 8:57 AM / 6 months ago

Weak construction, chemicals earnings hold Europe back while L'Oreal impresses

LONDON (Reuters) - European stocks slipped again on Friday, following their weakest day in six weeks, as downgrades to growth forecasts weighed and bleak numbers from Umicore, Skanska, and Rockwool outweighed a sales beat at L’Oreal.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, February 8, 2019. REUTERS/Staff

The pan-European STOXX 600 was down 0.1 percent as of 1010 GMT, with most of the action at the level of individual stocks. The index was on track for its worst week in six.

Markets were hit on Thursday by U.S. President Donald Trump saying he did not plan to meet Chinese President Xi Jinping before a March 1 deadline to achieve a trade deal.

Growth worries in Europe also spiked after the European Commission downgraded its growth forecasts.

“The trade issue is more in focus in the short term. Macro data over the last few weeks hasn’t given any reason to be more concerned about a recession than a month or two ago,” said Paul Harper, equity strategist at DNB.

“The cycle is pretty mature now but it’s always pretty difficult to know how close to a recession you are when indications are not showing signs that it’s around the corner,” he added.

French cosmetics giant L’Oreal said strong demand for luxury skin creams helped it beat fourth-quarter sales forecasts - another company reporting better-than-feared demand from China after LVMH last week.

“L’Oréal is capitalizing on very strong skin care growth, booming Luxury markets, strong demand in Travel Retail channels and the shift to online,” wrote Liberum analysts.

Its shares rose 1.2 percent in early deals before giving back gains to trade up just 0.4 percent. Traders put the move down to profit-taking after a strong run - L’Oreal hit a record high on Feb 5.

Luxury handbag maker Hermes gained 0.7 percent after it also said sales momentum in its Chinese stores stayed strong.

Swedish electronics group Dometic shone, topping the STOXX with a 13-percent jump after reporting fourth-quarter profit rose and giving a positive outlook for 2019 sales growth.

On the flip side, Belgian chemicals and cobalt refiner Umicore fell 4.8 percent after saying it expected 2019 growth to be hit by subdued demand in cars and consumer electronics, and R&D costs.

Analysts said the company’s lack of quantitative guidance for 2019 weighed on sentiment.

Construction was a weak spot with Denmark’s Rockwool sinking 12 percent after full-year earnings missed expectations, and Sweden’s Skanska losing 7.8 percent after it cut its dividend and lagged profit estimates.

Autos fell 0.3 percent, extending losses from Thursday when the sector suffered its biggest one-day drop since the Brexit vote aftermath in June 2016.

Tata Motors warned Jaguar Land Rover would swing to a loss due to weak sales, and that latest negative news on car demand weighed on auto suppliers Valeo and Faurecia, down 2.6 to 3 percent.

Adding to the negativity around autos, German car wiring supplier Leoni sank 25 percent after delivering a significant miss to fourth-quarter earnings expectations.

Swiss business services company DKSH fell 4.4 percent, extending Thursday’s losses after it reported earnings down 11 percent, lagging estimates.

Overall, Europe is on track for its weakest quarter for earnings growth in three years, but investors have been more forgiving to companies with valuations low and expectations at rock bottom.

“The question now is what can provide the catalyst for another leg up from here,” said DNB’s Harper. “At the moment earnings revisions are not particularly encouraging.”

Reporting by Helen Reid; editing by Josephine Mason and Hugh Lawson

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