ECB report eases earnings pain for European stocks

The German share price index DAX graph is pictured at the stock exchange in Frankfurt. ― Reuters pic
The German share price index DAX graph is pictured at the stock exchange in Frankfurt. ― Reuters pic

LONDON, July 19 ― European stocks ended lower yesterday, as earnings worries ran high after poor results from software firm SAP sank technology shares, although hopes of looser monetary policy from the European Central Bank helped indexes bounce off early lows.

After falling as much as 0.7 per cent during the session, the pan-European STOXX 600 index closed down 0.2 per cent, drawing support from a Bloomberg report that ECB staff were studying a potential change to the bank's inflation goal of near 2 per cent.

“The ECB changing its targets with regards to inflation could potentially enable it to be more accommodative for longer,” said Craig Erlam, senior market analyst at OANDA in London.

Global stock markets have been recovering strongly from a sharp correction in May, helped by expectations that central banks will funnel more cash into the economy to counter a global slowdown driven by the US-China trade war.

But a combination of earnings worries, and some slightly stronger economic numbers which may prevent policymakers from acting, have weakened sentiment globally in the past week.

Shares in Europe's most valuable tech company fell 5.6 per cent after it said investors would have to wait till next year for a major improvement in margins as the business software group reported a 21 per cent fall in quarterly operating profit.

That drove Germany's DAX to a one-month low, while technology stocks dropped 1.5 per cent.

“We are not seeing the positive surprises (from earnings) that you would expect to see with the bar lowered, although it's a bit early to say that,” said Erlam.

The Wall Street Journal reported overnight that progress toward a US-China trade deal had stalled while the Trump administration determines how to address Beijing's demands that it ease restrictions on Huawei Technologies.

That, along with some other disappointing earnings, including those for video streaming leader Netflix on Wednesday, drove a worsening of sentiment on both Wall Street and Asian markets.

London-listed stocks slid 0.5 per cent as the FTSE 100's internationally focused companies were hurt by gains for the pound on strong retail sales numbers and a vote by lawmakers to make a no-deal Brexit harder to achieve.

Another big decliner was Finland's Wartsila Oyj, which slumped 12 per cent after the engineering firm warned that it expected demand to weaken for its marine and energy businesses.

Italian banks bucked the gloomy trend, with a 0.4 per cent jump after comments from Deputy Prime Minister Luigi Di Maio about the future of a coalition government raised possibility of snap elections that could see a business-friendly centre-right coalition come to power.

Also limiting losses in Europe's blue-chip index was Swiss drugmaker Novartis, up 3 per cent after the company lifted full-year sales and profit targets.

British American Tobacco Plc shares jumped 5.5 per cent, helped by strong quarterly results and a forecast from US tobacco company Philip Morris. ― Reuters

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