Europe: Shares eke out weekly gains after choppy session

[LONDON] European stocks ended a choppy trading session broadly flat on Friday but managed to eke out a weekly gain despite mixed third-quarter earnings and while the budget row between Italy's populist government and the European Union heated up.

The pan-European STOXX 600 dipped 0.06 per cent to end the week with a 0.7 per cent gain.

Italy's bank stocks index sustained heavy losses in morning trading and fell to 22-month lows as government bonds were sold off after Brussels sent Rome a letter demanding an explanation for its budget plans.

Italian banks gradually pared their losses and limited their daily retreat to 0.4 per cent.

A crop of results, some with negative outlooks, suggesting growth slowing in China also cast a shadow on the session.

Shares in tyre maker Michelin tumbled 11.2 per cent after it cut its sales outlook and downgraded its market growth forecasts, blaming slowing Chinese car demand and new emissions testing regulations.

"Companies that disappoint are always more harshly punished but, given the trend in the market currently, reactions are stronger than usual," said Emmanuel Cau, European equity strategist at Barclays.

Michelin's German rival Continental fell 4.5 and the autos and parts sector as a whole sank 2.8 per cent.

"This warning provides a negative read across to all tire makers (weaker market volume and higher input costs)," said UBS analysts.

French conglomerate Bouygues fell 11.8 per cent after cutting its profit outlook due to difficulties in its construction businesses, also reporting a shrinking margin due to problems with contracts and France's rail strikes.

"This was particularly surprising two weeks after a bullish construction capital markets day," Credit Suisse analysts wrote.

Swedish builder Skanska fell 10.6 per cent after saying it had booked charges of 1.3 billion crowns (S$199.24 million) in the third quarter relating to construction projects in the United States.

Overall, the construction and materials sector fell 1.7 per cent, its second day of declines after being hit on Thursday by a profit warning from Heidelbergcement.

"We have a negative view on this sector - it's very sensitive to emerging markets and China, and we're quite cautious on those areas," said Barclays' Cau. "Construction is penalised both by a slowing economy and by rising raw materials costs."

Sopra Steria was the top STOXX 600 faller, dropping 25.6 per cent after cutting its 2018 revenue forecast due to a contract loss in banking software.

"The profit warning will probably trigger around 15 per cent EPS downgrades and obviously a bit of an additional hit from a share price perspective because of derating as well," said Georgios Kertsos, an analyst at Berenberg.

"It's probably a bit too harsh a hit," he added, saying more detail was needed from the company, which is in a quiet period before its third-quarter results on Oct 25.

Overall, analysts have been downgrading their forecasts for European earnings quite sharply in recent weeks, but Barclays' Cau said he thought estimates for 2019 earnings growth were still too high and could decline further.

REUTERS