Prospect of weak earnings dents European shares

Reuters - UK Focus

* FTSEurofirst 300, ESTOXX 50 dip slightly

* Prospect of weak earnings weighs

* Buy into ESTOXX 50 if it falls to 2,900 -Reyl

By Sudip Kar-Gupta

LONDON, Jan 14 (Reuters) - European shares edged lower onTuesday as concerns about weak corporate earnings, following astring of downbeat business updates from U.S. companies, causedstock markets to dip.

Investors with a longer-term view out towards the end of2014 said the broader upwards trajectory for European equitiesremained intact, but some expected a near-term pullback.

U.S. stock markets and Germany's benchmark DAX equity index have hit record highs, but some investors areconcerned that further gains will be limited until corporateearnings start to improve.

U.S. stocks fell sharply on Monday after a number ofmid-sized companies including soda-making group SodaStream and yogawear chain Lululemon Athletica (NasdaqGS: LULU - news) postedweak earnings or forecasts.

On Tuesday, German rubber maker Lanxess (Other OTC: LNXSF - news) said itprobably hit its 2013 profit target while UK drugmakerAstraZeneca (NYSE: AZN - news) forecast a faster return to growth, butinvestors were nevertheless nervous about the earnings season.

"There is no room for disappointment in the earnings seasonfor the first quarter," said Francois Savary, chief investmentofficer at Swiss bank Reyl.

The pan-European FTSEurofirst 300 index was down0.2 percent at 1,322 points in late session trading, while theeuro zone's blue-chip Euro STOXX 50 index fell 0.3percent to 3,103.37 points.

Germany's DAX, which hit a record high of 9,620.93points in early January, fell 0.3 percent to 9,481.39 points.


Savary said the Euro STOXX 50 could drop to the 2,900 levelduring the first quarter of this year, but added this could be agood buying opportunity as he expected the index to then recoverand end 2014 at 3,400 points.

Goldman Sachs (NYSE: GS-PB - news) , in a strategy note this month, said the U.SS&P 500 index, which has hit record highs, had a "67percent probability of a 10 percent drawdown during 2014."

Goldman cut its rating on the U.S. equity market to"underweight" on a three-month basis, but it remained"overweight" on European equities.

Andreas Clenow, hedge fund trader and principal ofZurich-based ACIES Asset Management, said investors were gettingnervous in the short term even though the longer-term outlookwas positive, with the global economy slowly recovering.

"I think a lot of people are getting nervous at this point,"said Clenow.

"I don't see an end to the bull market yet, but there is ahigh probability of a move down before we then move up."

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