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European shares bounce as earnings beat forecasts

European shares bounce as earnings beat forecasts
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First Published: Tue, Nov 08 2011. 04 02 PM IST

Updated: Tue, Nov 08 2011. 04 02 PM IST
London: European shares rose on Tuesday, bouncing from two days of losses, as upbeat corporate news from the likes of telecom heavyweight Vodafone helped offset some investors’ concerns about the euro zone debt crisis.
However, political developments in debt-ridden Italy, where bond yields have reached euro era record highs, will be very much in focus as the government faces a crucial budget vote.
At 3:04pm, the FTSEurofirst 300 index of top European shares was up 1.3% at 987.69 points.
Vodafone rose 2.7% after edging its full-year outlook higher as growth in emerging markets and robust trading in northern Europe helped the world’s largest mobile operator to post first-half results ahead of forecasts.
Marks & Spencer , Britain’s biggest clothing retailer, rose 4% after a fall in profit was not as bad as some had expected.
“Companies have beaten expectations, but that is against lowered expectations,” Jeremy Batstone-Carr, strategist at Charles Stanley, said. “There may be a good share price reaction on the day, but it tends not to last.
“One of the features of the autumn has been the extent to which the macro picture has trumped the corporate picture,” he added.
The effect of the euro zone crisis continued to show up in corporate results.
Societe Generale , France’s second-biggest listed bank, scrapped its 2011 dividend to help bolster capital when reporting a steeper than forecast drop in quarterly profit, hit by charges including Greek debt writedowns. But the shares rose 8.2%, with the results not as bad as some had feared, and much of the bad news already in the price
The STOXX Europe 600 Banking Index rose 2.4% but is down 30.5% this year, with several banks having had to write down the value of sovereign bonds in euro zone peripheral economies.
BUDGET VOTE
Italian Prime Minister Silvio Berlusconi, under massive pressure to resign, faces a crucial vote on public finances in parliament on Tuesday which could sink his government if enough party rebels desert him.
Yields on Italian bonds reached record levels of about 6.7% on Tuesday, regarded by many analysts as unsustainable. Although other countries, such as Greece, have received bailout packages, Italy, the euro zone’s third-biggest economy, is regarded as “too big to bail” by many economists. A default by Italy would trigger an escalation of the euro zone debt crisis.
“Berlusconi is probably going to survive but there is likely to be a vote of confidence (later in the week). He may or may not muddle through. Investors will be keeping a very close eye on Italian bonds,” Batstone-Carr said.
The pan-European index’s rise on Tuesday took it through key technical levels such as the 38.2% Fibonacci retracement of its fall from a 2011 high in February to its low in September.
Strategists said it may remain rangebound, supported by cheap valuations, but constrained on the upside by lack of a resolution to the euro one crisis.
However, some traders remained more focused on Tuesday’s news, welcoming the strong corporate developments.
“Across the board, we’ve had quite good results. With Marks & Spencer , it was not as bad as expected. (The Italian issue) has taken a back seat for now, though if we see any news on that it will affect the market as it did yesterday,” Tom Wright, sales trader at City Index, said.
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First Published: Tue, Nov 08 2011. 04 02 PM IST
More Topics: Markets Update | Europe | Stocks | FTSE | STOXX |