Company / Analytics

Analytics, 06 August 2021

European stocks rise on strong earnings

European stocks are on course for their strongest weekly performance in three months, as upbeat quarterly earnings and loose monetary policy supported markets despite a surge in COVID-19 cases and concerns about inflationary pressures.

Stronger-than-expected quarterly reports have led analysts to lift their projection to a near 140% jump in second-quarter profit for companies listed on the STOXX 600.

Quarterly earnings drive European stock Index

European markets were slightly higher on Friday as investors monitored a fresh round of corporate earnings and the global spread of the delta Covid-19 variant. On Friday, stocks got a lift from financials such as Allianz, which reported a jump in net profit. Stocks also got a lift from better-than-expected U.S. jobs data.

The pan-European Stoxx 600 climbed 0.12% by mid-afternoon trade, to 470.83, with the German DAX up 0.2%, the French CAC 40 rising 0.4%, and the London FTSE 100 up 0.1%. Insurance stocks added 1.4% to lead gains after strong earnings from Allianz, while health care stocks fell 0.8%.

The Stoxx 600 index is set to deliver a 1.8% rise this week, marking its third-straight winning week, though last week’s gain was modest. The index has returned nearly 18% so far this year, in line with a similar gain for the S&P 500.

Companies reporting Friday

On Friday, shares of Allianz climbed over 2% after the German financial group said it sees operating profit for the year in the upper half of a forecast range, as net profit grew significantly in the second quarter. The life and health operations posted an almost 30% increase, while asset management’s operating profit was up 29%.

Allianz announced on Sunday that the U.S. Department of Justice was probing its hedge funds that triggered deep losses for investors during the COVID-19 fueled market plunge last year and said the hit to earnings could be significant. Allianz sees its operating profit for the year in the upper half of the 11 billion euros to 13 billion euros ($13.02 billion-$15.38 billion) target range. Allianz raised its outlook and announced a 750 million euro share buyback program.

Other large companies reporting Friday include the world’s largest shipping firm Maersk, Vonovia, and the London Stock Exchange.

Maersk, the world’s largest container shipping firm, has posted a sharp increase in second-quarter earnings as congestions and bottlenecks continue to drive up shipping rates. The Danish giant reported earnings before interest, tax, depreciation, and amortization (EBITDA) of $5.1 billion, a 200% increase from the $1.7 billion reported in the same period last year. Maersk shares were 0.5% on Friday afternoon.

Meanwhile, the biggest decliner was generic drugmaker Hikma Pharmaceuticals which dropped 6% even as the company said pretax profit for the first half rose along with revenue, which barely beat consensus. Hikma lifted its guidance, citing a strong performance from recently launched products, and the board proposed an interim dividend.

Elsewhere, shares of the private-equity battle for U.K. supermarket chain Wm Morrison Supermarkets rose over 2% on Friday after a Fortress Investment Group-led consortium increased its takeover bid.

Thursday Earnings and Corporate news

German conglomerate Thyssenkrupp on Thursday announced that it has agreed to sell its infrastructure unit to German investment company FMC Beteiligungs KG for an undisclosed fee, a key part of its restructuring plan.

Meanwhile, shares in Novavax soared in premarket trading on Thursday after clinching a key COVID-19 supply contract with the European Union. On Wednesday, the European Commission gave the green light to the Maryland-based biotech firm to secure up to 200 million doses, with the first batch of the two-shot vaccines ready for shipment ahead of the winter. But there’s still a big “if” hanging over the deal.

The EU will buy 100 million Novavax doses this year, and it has the option to purchase another 100 million doses through 2023 as soon as the vaccine is approved by the European Medicines Agency. On Wednesday, shares in Novavax surged 18.69% following the announcement, and are up a further 3.6% in premarket trading today.

The EC said in a statement that the contract expands the member nations’ portfolio of vaccines produced in Europe to include one more protein-based vaccine, representing “another key step towards ensuring that Europe is well prepared to face the COVID-19 pandemic.”

The Novavax vaccine has been highly anticipated after some big trial wins. Novavax was 89.3% effective in a U.K. and South Africa study conducted in January, 96.4% effective in a large-scale Phase III trial conducted in the U.K. in March, and 90% effective overall in a late-stage study conducted in the U.S. and Mexico in June.

The EU previously announced that it had completed “exploratory talks” back in December 2020 on similar terms of ordering up to 200 million doses. But that deal was held up over delivery scheduling and supply chain issues. Furthermore, the Novavax vaccine has yet to clear the final hurdle of approval with either European or U.S. regulators. The Novavax vaccine can also be stored in standard refrigerators, making it easier to distribute.

After a slow start, Europe has been rapidly vaccinating adults. But there are still big gaps between member states even as the Delta variant rips through the unvaccinated population. The EU vaccination rate, counting first and second jabs, hovers around 60%. It recently surpassed the United States in that much-watched measure.

Wednesday earnings

Big names that reported on Wednesday include Commerzbank, Siemens Energy, Hugo Boss, and Intesa Sanpaolo among others. Notably, Commerzbank reported a net loss of 527 million euros ($625.7 million) in the second quarter, as restructuring expenses and an exceptional write-off to an outsourcing project wiped out profits. The German lender’s shares fell 6% to the bottom of the Stoxx 600 by mid-afternoon deals.

On Tuesday, earnings showed that the global semiconductor shortage is likely to continue weighing on carmakers, as carmakers BMW and Stellantis warned that production and sales will be hampered throughout the remainder of 2021 and beyond.

Economic Data

On Thursday, investors focused on the Bank of England’s policy decision, for clues on when the central bank might start to lay out its plan for reversing its stimulus.

The BoE left its monetary policy unchanged but warned of a more pronounced period of above-target inflation in the near term.

Economists polled by Reuters expected the BoE to keep its benchmark interest rate at an all-time low of 0.1% and leave its bond-buying programme on course to reach its 895 billion-pound ($1.24 trillion) target size by the end of this year. U.K. starting salaries for permanent jobs rose by the most on record last month as employers struggled to recruit in light of the pandemic, according to a survey published Friday.

In Germany, industrial output fell unexpectedly by 1.3% in June, the second consecutive monthly decline, according to the Federal Statistics Office. The final German PMI (purchasing managers’ index) readings on Wednesday showed euro zone business activity surging in July to its fastest expansion in 15 years. The final composite PMI, seen as a useful gauge of economic health, rose to 60.2 from June’s 59.5. The 50 mark separates growth from contraction.

The German situation was different to the U.K. where the composite PMI dropped sharply to 59.2 from June’s 62.2 after services were hit by hundreds of thousands of workers being forced into self-isolation by the government’s contact tracing app, as cases of the delta Covid-19 variant surged.

Meanwhile, retailers took a hit as German online fashion company Zalando slid 8.7% after it said it had spent more on marketing to keep its customers shopping. Stock in Adidas fell 4.6% after it raised its outlook for full-year sales and profitability but took a hit in China.

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