European Stocks Dip From Record High on Earnings, Valuation Risk

(Bloomberg) -- European stocks retreated from a record high as investors considered a flurry of corporate earnings against risks to the rally. 

The Stoxx Europe 600 dropped 0.2% by the close in London, the first decline in nine days. Retail sector led the advance, while miners fell with iron ore and banks underperformed as Treasury yields retreated. 

Investors are weighing the risks to the rally that has taken European stocks to record highs and keeping an eye on central banks to assess the impact of inflation on monetary policy. In the U.S., Lael Brainard is said to have interviewed for the top job at the Federal Reserve, with some speculating that the central bank would be more dovish under her leadership. 

“Regionally, we prefer Europe relative to others,” but that view is under review, Vivek Paul, a senior portfolio strategist at the Blackrock Investment Institute, said in an interview on Bloomberg Television. “In this period now, there’s a narrowing path in which risk assets can perform.”

European equities have gained for the past five weeks as corporate profits drove optimism in the region, with companies managing inflationary pressures and supply bottlenecks. Focus will likely turn to monetary policy as the earnings season comes to a close. 

AB Foods Jumps, Bakkafrost Sinks On Results: EMEA Equity Movers

“Once rates do start to rise, the pace of that path is going be slower than we’ve been accustomed to,” Paul said. “That is the thing that actually means that equity markets still have room to be supported in this environment.”

Meanwhile, UBS Group AG strategists led by Nick Nelson published a target for the Stoxx 600 that implies an upside of about 7.5% from Monday’s close. The firm also upgraded Italy to overweight, citing attractive valuations and earnings momentum. 

Bayer AG climbed after raising its earnings forecast and reporting third-quarter results that beat analysts’ estimates. Associated British Foods Plc advanced the most in a year after declaring a special dividend with its full-year results.

Among other individual movers, Allegro.eu SA slumped the most on record, falling below its IPO price, after reporting weaker-than-expected earnings. Bakkafrost P/F dropped 15%, the most on record, after its results.

MARKETS

• Equities: Euro Stoxx 50 down 0.2%, FTSE 100 down 0.4%, DAX unchanged, CAC 40 down 0.1%, FTSEMIB down 1.0%, IBEX 35 unchanged, AEX-Index down 0.3%, Swiss Market Index up 0.1%
• Bonds: German 10-year-yield down 5bps at -0.3%, Italian 10-year-yield down 5bps at 0.84%, Spanish 10-year-yield down 5bps at 0.38%
• Credit: iTraxx Main up 0.9bps at 48.5, iTraxx Crossover up 4.7bps at 245.1
• FX: Euro spot down 0.09% at 1.1577, Dollar index up 0.07% at 94.11
• Commodities: Brent crude up 0.3% at $83.7/bbl, copper down 1.0% at $9,539/MT, iron ore down 3.3% at $89.9/MT, gold up 0.1% at $1,825.84/oz

EUROPE EQUITIES

• 7 out of 20 Stoxx 600 sectors rise; retail sector has the biggest volume at 201% of its 30-day average; 255 Stoxx 600 members gain, 339 decline
• Top Stoxx 600 outperformers include: Associated British Foods +8.0%, Ambu +6.4%, Wienerberger +4.5%, Renault +3.8%, LPP +3.7%
• Top Stoxx 600 underperformers include: Bakkafrost P/F -14.6%, Allegro.eu -11.2%, Darktrace -6.1%, Swedish Match -5.2%, Hiscox -4.3%
• For a daily wrap highlighting the biggest movers among EMEA stocks, click here
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