European Stock Rally Loses Steam on Mixed Earnings as Week Ends

(Bloomberg) -- European stocks lost momentum on the final day of their best week in a month amid mixed earnings reports.

Software maker SAP SE added 3.4 percent after raising its earnings and sales projections, while Ericsson AB slid 5.9 percent after posting a loss. Daimler AG fell 2.1 percent as it cut its revenue forecast. Deal activity also moved shares: British American Tobacco Plc reversed gains to slide 2.9 percent after a report that Reynolds American Inc. may deem its unsolicited bid for full ownership inadequate. Burberry Group Plc gained 3.1 percent on a report Coach Inc. is considering merging with it.

In a week dominated by earnings reports and the European Central Bank’s policy update following speculation about an extension to quantitative easing, the region’s equities climbed for three straight sessions before stalling. The Stoxx Europe 600 Index was unchanged at the close on Friday, taking its five-day advance to 1.3 percent.

“Apart from those sectors that are multinational in their exposure, there is not that much possibility for large growth” in earnings, said Jasper Lawler, a market analyst at CMC Markets in London. “In the short term, if more QE is coming, that will positive for European stocks but it is not going to catalyze some major bull market this time. It’s a ‘buy rumor, sell the fact’ phenomenon.”

Easing investor concern that monetary policies will be tightened too soon, ECB President Mario Draghi said yesterday it’s unlikely that its bond-buying plan will end abruptly. Still, he left questions unanswered about how the central bank will extend, adjust or wind down the program that’s currently set to expire in March. Officials next meet in December.

A gauge of Stoxx 600 banks climbed for a fourth day, closing at its highest level since the U.K.’s secession vote. Lenders have rallied in October, led by those in Italy and Spain, on speculation the ECB may tweak its stimulus in ways that will boost profitability, a key concern in a low-rate environment. The FTSE MIB Index and the IBEX 35 Index rose more than 3.4 percent this week, among the best performers in western-European markets.

Miners led gains in the Stoxx 600, closing at a 14-month high following a rise in the dollar. ArcelorMittal and Anglo American Plc added 2.8 percent or more.

The earnings season is picking up pace in Europe, with more than 100 Stoxx 600 companies scheduled to release figures next week. Among those reporting are lenders Deutsche Bank and Barclays Plc, drugmaker Novartis AG and carmaker Volkswagen AG. Analysts have tempered estimates for 2016 profit declines for the first time since early September. They project a drop of 4.3 percent for the period, followed by double-digit earnings growth in each of the next two years.

The Stoxx 600 has risen 0.4 percent this month, erasing a drop of as much as 2.1 percent. The gauge has risen in five of the past six Octobers. Still, a slump of 5.9 percent this year has dragged its valuation to 14.8 times the estimated earnings of its members, making it about 11 percent cheaper than the S&P 500 Index.

Among other shares active on corporate news on Friday:

• Yara International ASA and Valeo SA advanced 3 percent or more after their results beat projections. 
• Altice NV added 1.8 percent after people familiar with the matter said it’s considering options to raise money for expansion in the U.S., including an initial public offering of its American cable-TV unit.
• Intercontinental Hotels Group Plc dropped 2 percent after its revenue per room rose at a slower pace than analysts estimated.
• Assa Abloy AB slid 6.4 percent after its third-quarter operating income missed predictions.

To contact the reporters on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net, Julie Edde in London at jedde2@bloomberg.net. To contact the editors responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net, Namitha Jagadeesh