European Stocks Rise Ahead of New Earnings Season, on Deals Talk

This content was published on October 12, 2020 - 16:09

(Bloomberg) -- European equities rose on Monday as investors focused on the start of a new earnings season that Morgan Stanley said should show a robust profit recovery.

The Stoxx Europe 600 index added 0.7% by the close in London, led by utilities, technology and automakers. Dutch phone company Royal KPN NV surged 6.8% after a Bloomberg News report that EQT AB, the European private equity firm, is considering its takeover. SimCorp A/S jumped 5.4% to a record high after the software firm signed a term sheet for a contract with State Street.

Investors are preparing for the kick-off of the European third-quarter results season within days, while reports from large U.S. banks this week should provide fresh insight into the economic impact of the Covid-19 pandemic. Morgan Stanley strategists led by Ross A. MacDonald said in a note on Monday that they expect the improvement in business conditions in the third quarter along with positive surprises in European economic data to bring a “strong” rebound in European profits.

“I suspect that the pattern of companies exceeding dramatically lowered expectations will be maintained in line with previous quarters,” Karolina Noculak, investment director at Aberdeen Standard Investments, said by email. “Investors may not be looking in the rear window and instead be focusing on forward-looking guidance.”

In Europe, ASML Holding NV will be among the first major companies to report on Wednesday while next week will see the likes of Volvo AB, Neste Oyj and UBS Group AG releasing their profits.

Elsewhere, fresh restrictions aimed at controlling the spread of the coronavirus are being implemented around Europe, while in politics, a deadline for a Brexit trade deal is fast approaching and there’s been little progress on a new U.S relief package. Markets have mostly shrugged off those risks of late, with the Stoxx 600 recording its biggest weekly rise since June last week.

The U.K. FTSE 100 underperformed Monday, losing 0.3% as a lower oil price weighed on commodities firms and as Rolls Royce Holdings Plc slumped 13%. U.K. pubs, leisure and retail stocks all held declines today after the government confirmed that tighter virus restrictions will be put in place in some parts of England.

Aberdeen’s Noculak remains positive on the outlook for shares. “Abundant liquidity, accommodative policy and under-invested institutions all point to a conducive environment for future equity returns,” she said.

Meanwhile, “the contest between value and growth leadership continues,” Noculak said. “A sustained rotation requires evidence of cyclical improvement, with outlooks from industrial and consumer stocks likely to take center stage.”

Among individual stocks, IAG SA fell 1.7% after announcing a change in leadership at British Airways.

©2020 Bloomberg L.P.

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