Bulletin
Investor Alert

April 24, 2019, 5:35 a.m. EDT

Energy companies lead the retreat for European stocks

By Dave Morris

European markets gave back much of Tuesday’s gains as strong earnings elsewhere could not offset oil companies’ retreat.

How did markets perform?

The Stoxx 600 (STOXX:XX:SXXP)  was down 0.1% to 390.9, after rising 0.2% on Tuesday.

Germany’s DAX (XEX:DX:DAX)   (NAS:DAX)  was a bright spot despite gloomy economic data. The index rose to 12,256.9, up 0.2% after adding 0.1% Tuesday.

The U.K.’s FTSE 100 (FTSE:UK:UKX)  retreated 0.4% to 7,490.2, following Tuesday’s solid gain of nearly 0.9%.

The pound (XTUP:GBPUSD)  fell 0.1% to $1.2932, after declining 0.3% Tuesday.

In Italy, the FTSE MIB (BORSA:IT:I945)  fell 0.4% to 21,802.8, piling atop losses Tuesday of 0.3%.

France’s CAC 40 (PAR:FR:PX1)  reversed Tuesday’s gain of 0.2% with a loss of 0.2%, sinking to 5,578.

Crude oil backed off Tuesday’s highs. West Texas Intermediate (WTI)  declined 0.5% to $65.98/bbl, while the Brent benchmark  dropped 0.2% to $74.35.

What’s moving the markets?

Market followers struggled Wednesday morning to digest Tuesday’s record-high closes in U.S. equities. While earnings came in stronger than expected, analysts cautioned that the case for continued strength was not a slam dunk.

Jasper Lawler, head of research at London Capital Group, said: “The market was bracing itself for a pretty poor outpouring of numbers. Yet time and time again we are seeing firms beat this low bar and are providing strong forward guidance.

“There is a heavy focus right now on the health of corporate America and the US economy. Companies are surprising to the upside, the US GDP on Friday will also be a big test.”

Citing policy insiders, Reuters reported that China would likely hold off on further cuts to banks’ reserve requirement ratio (RRR) as the country’s central bankers gauged the health of the economy. Recent economic data flashed positive signals, bolstering the case for a wait-and-see stance. In other China news, trade talks with the U.S. are set to continue next week in Beijing, and the following week in Washington D.C.

A slow day for Brexit news, as U.K. Prime Minister Theresa May was reported to be targeting a parliamentary vote on her withdrawal agreement next week as discussions continued within the Conservative Party around whether to change the rules and force her out as leader. Talks between government and opposition Labour Party representatives again broke down, perhaps because their lack of progress was overshadowed by the lack of progress elsewhere.

In economic data, Germany’s IFO survey of business climate for April came in at 99.2, below the predicted 99.9 figure, sending both the euro and the DAX down slightly.

Which stocks are active?

German enterprise software company SAP SE (FRA:DE:SAP)  saw strong first quarter results thanks to take-up of its cloud computing services. New cloud bookings rose 32%, the company said. Shares climbed 6.8%.

Swiss bank Credit Suisse Group AG (NYS:CS)  went from strength to strength by following last year’s annual profit, its first since 2014, with net profit (CHF749 million) and revenue (CHF 5.39 billion) beating expectations in the first quarter of 2019. The bank exited a three-year restructuring program in 2018. Its shares were up 2.9%.

German payments company Wirecard AG (DUS:DE:WDI) , which has been battered by an investigation into its accounting practices in Singapore, got a boost from Japanese telecommunications company SoftBank Group Corp. which plans to invest approximately €900 million in it. The investigation by an outside law firm said that while local staff may have committed crimes, these were not material to Wirecard’s financial position. Wirecard shares jumped a whopping 7%.

Though earnings season produced dramatic jumps in share prices for several European companies, a retreat in crude prices forced oil companies to give back some of Tuesday’s gains. Tullow Oil (LON:UK:TLW)  fell 2.7%, 1&1 Drillisch AG  dropped 2.1%, Lundin Petroleum AB  also dipped 2.1% and BP Plc  fell 1.6%.

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