By Tommy Stubbington and Josie Cox
European stocks fell Thursday, with a fresh plunge for
Portuguese lender Banco Espirito Santo compounding investor
concerns over an underwhelming corporate earnings season.
BES shares sank more than 50% as they reopened after a two-hour
trading suspension, after the company, late on Wednesday, reported
a record net loss for the second quarter that highlighted the
extent of the financial troubles besetting its parent groups.
Portugal's PSI 20 index closed down 3.1% having hit a new low
for the year earlier in the session, while the broader Stoxx Europe
600 ended the session 1.3% lower.
Paris' CAC 40 lost 1.5% and London's FTSE 0.6%, while Germany's
DAX underperformed most of the regions' other indexes, falling 1.9%
on disappointing results from Adidas and Deutsche Lufthansa.
That overshadowed better-than-expected figures from firms
including French drug maker Sanofi and oil giant Royal Dutch Shell
which gave French and U.K stocks an early--albeit
short-lived--lift.
Around a third of Stoxx Europe 600 companies have so far
reported results for the quarter, with nearly half missing market
profit estimates, according to FactSet data.
That contrasts with the U.S., where under a quarter of firms
have fallen short of expectations. On Thursday, however, the
earnings picture in the U.S. was more akin to Europe's, with Exxon
Mobil reporting a decline in production and Whole Foods Market Inc.
l owering its annual sales projection for the fourth time in nine
months. The Dow Jones Industrial Average waned 1% in late European
trade, and the S&P 500 lost 1.3%.
Jeremy Batstone-Carr, chief economist and strategist at
London-based brokerage and wealth manager Charles Stanley, which
has around GBP20 billion ($33.9 billion) of assets under
management, said that investors are now starting to worry that
expectations of improving profits for the rest of 2014 are looking
increasingly far-fetched,
"It's starting to be a leap of faith to think the corporate
sector can generate the growth to justify current valuations," Mr.
Batstone-Carr said.
On Wednesday, the U.S. Federal Reserve cut its monthly bond
purchases to $25 billion, as expected, and offered a mixed view on
the economy. That news, however, combined with
stronger-than-expected growth data for the U.S. economy, had little
overall effect on U.S. stocks on Wednesday.
On Friday, investors will be eyeing the latest nonfarm payroll
report out of the U.S., following a release of Wednesday that
showed that U.S. businesses had slowed their pace of hiring in
July.
Economists believe July nonfarm payrolls will have increased by
230,000. That is down from the 288,000 jobs added in June, but it
would be the sixth consecutive monthly gain of at least 200,000
jobs.
In currency markets on Thursday, the euro was broadly unchanged
against the greenback having dipped slightly after data showed that
euro-zone consumer price inflation slowed further to an annual rate
of 0.4% in July.
Inflation remains way below the European Central Bank's target
of close to 2%. Bond yields in the euro zone fell to record lows
earlier this week with investors increasingly betting the ECB will
need to bring in fresh easing measures to combat chronic low
inflation.
On Thursday, Germany's 10-year yield fell slightly to 1.16%,
compared with its all-time low of 1.11% hit Tuesday. The common
currency traded at $1.3388, not far off the eight-month low it hit
on Wednesday after the U.S. GDP data.
"The Fed is still hesitant to implement a more restrictive
monetary policy. Today's CPI data in the euro zone, on the other
hand, will force the ECB to consider the possibility of an even
more expansionary monetary policy," said Lutz Karpowitz, a currency
strategist at Commerzbank.
In commodities markets, gold fell 0.7% to at $1,287.20 an ounce,
while Brent crude oil fell 0.6% to $105.92 a barrel.
Write to Tommy Stubbington at tommy.stubbington@wsj.com and
Josie Cox at josie.cox@wsj.com
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