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European shares recover after late rally in oil

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European shares recover after late rally in oil

LONDON, Jan 27 European shares recovered to finish slightly higher on Wednesday as a late surge in oil prices helped offset pressure on the broader market from a spate of weak earnings updates.

Oil futures surged 5 percent, having opened lower, after Russia referred to possible co-operation with other major oil producers and as U.S. data showed a spike in demand for products such as heating oil last week when heavy blizzards hit.

That helped the oil and gas sector rise 1.1 percent, and helped the pan-European FTSEurofirst 300 close up 0.4 percent at 1,340.76 points.

“The threat of the early sell-off for oil prices this morning failed to materialise with crude bouncing above the $30 mark and this has in turn lent a raft of support to equity markets,” said Tony Cross, market analyst at Trustnet Direct.

Britain’s Sage was the top riser on the index, up 7.5 percent after posting a solid set of results after a strong first quarter.

However, Royal Bank of Scotland dropped 2 percent after the bank warned its profits would be hit by a pension charge and U.S. litigation provisions.

A forecast of lower revenues from iPhone maker Apple also hit European technology and chipmaker stocks such as ARM and Dialog.

Novartis fell 3.7 percent after its fourth-quarter core net income missed expectations, while BASF declined by 1.8 percent after issuing a profit warning.

“We’re only just getting under way on the European earnings front, but it’s been a pretty mixed bag so far with weak updates from Novartis and BASF,” said Clairinvest fund manager Ion-Marc Valahu.

Sweden’s Ericsson dropped 6.3 percent, even after operating profit beat consensus. Analysts said that underlying negative growth was a concern, while the gross margin was narrower than expected.

“Underlying looks slightly weaker than expected… we believe consensus sales and GP estimates for 2016/2017 are likely to see downward revision of 2 to 3 percent,” analysts at Credit Suisse said in a note.

Elsewhere in Scandinavia, TDC dropped 9.6 percent after the Danish telecom operator scrapped its dividend following a deterioration in its financial results.

Italy’s FTSE MIB equity index underperformed, down 0.4 percent, even though Italy reached a deal with the European Commission to help Italian banks sell some of their 200 billion euros of bad loans.

Traders said that while the deal was a step in the right direction, the mechanics on how it would work were unclear and could be costly for the banks.

Today’s European research round-up

Source: Reuters by Danilo Masoni in Milan; Editing by Ruth Pitchford