European Stocks Edge Higher as Earnings Damp Inflation Concerns

(Bloomberg) -- European equities rose on Tuesday as investors eyed signs of a robust start to the latest earnings season, which outweighed lingering inflation concerns.

The Stoxx Europe 600 Index gained 0.3% by the close in London, with utilities, technology and financial services leading gains, while food and beverage and telecoms sectors underperformed. Airlines were weighed down by concern about rising fuel costs, Covid-19 infections in the U.K. and London Heathrow airport’s plan to lift its charges. 

European stocks have recovered some ground after slumping in September on concern that central bankers would need to raise interest rates in response to a spike in energy prices and broader inflation. Investors are now looking to company earnings commentary for clues on the impact of higher prices on profits. 

“The messages have been reassuring,” said Guy Foster, chief strategist at Brewin Dolphin, in written comments. “There’s been some pre-emptive price increases which have been tolerated and that leaves companies giving cautious guidance on pricing, but remaining overall upbeat.”

“Everyone knows that there will be some margin pressure coming, and maybe some pressure on volumes, but so far we’re in the phase where consumers are capable of swallowing it,” Foster added.

Among individual shares, Bellway Plc rose 1.6% after the U.K. homebuilder laid out new growth targets. Ericsson AB fell 3.7% after a quarterly update, with analysts saying uncertainties over supply chains and China took the shine off an otherwise strong report.

Basic resources stocks trimmed gains as Glencore Plc and other coal producers declined after China said it would look at measures to intervene to tackle a surge in prices. 

More broadly, Esty Dwek, chief investment officer at FlowBank SA, sees room for stocks highly exposed to the economy to push higher as the pandemic continues to ease. 

“As much as we’re starting to get back to normal, we’re not quite there yet, so there is room for more reopening, and therefore for more cyclical stocks,” she said in an interview with Bloomberg Television.

Kempen Capital Management, meanwhile, prefers European stocks over U.S. peers. Senior investment strategist Joost van Leenders cited valuations and sensitivity to interest-rate rises in a note to clients. 

• Equities: Euro Stoxx 50 up 0.4%, FTSE 100 up 0.2%, DAX up 0.3%, CAC 40 unchanged, FTSE MIB up 0.2%, IBEX 35 up 0.7%, AEX-Index up 0.7%, Swiss Market Index down 0.2%
• Bonds: German 10-year-yield up 3bps at -0.11%, Italian 10-year-yield up 4bps at 0.94%, Spanish 10-year-yield up 3bps at 0.52%
• Credit: iTraxx Main down 0.8bps at 50.0, iTraxx Crossover down 3.9bps at 254.3
• FX: Euro spot up 0.21% at 1.1634, Dollar index down 0.22% at 93.74
• Commodities: Brent crude up 0.8% at $85.0/bbl, copper down 0.4% at $10,156/MT, iron ore up 0.3% at $123.6/MT, gold up 0.3% at $1,770.11/oz

EUROPE EQUITIES

• 15 out of 20 Stoxx 600 sectors rise; banks sector has the biggest volume at 115% of its 30-day average; 394 Stoxx 600 members gain, 198 decline
• Top Stoxx 600 outperformers include: Evolution +5.8%, ProSiebenSat.1 Media +5.6%, Ambu +4.8%, Klepierre +4.5%, CD Projekt +4.5%
• Top Stoxx 600 underperformers include: Bachem Holding -10.9%, Wise -6.9%, THG -6.7%, International Consolidated Airlines Group -5.8%, TUI -5.5%
• For a daily wrap highlighting the biggest movers among EMEA stocks, click here
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