European shares at 5-yr highs, cheered by Philips results

Reuters

* FTSEurofirst 300 steady around 5-yr highs

* Philips, AkzoNobel, SAP rise after results

* European equities enjoy best weekly flows in 2 yrs -EPFR

By Toni Vorobyova

LONDON, Oct 21 (Reuters) - European shares steadied aroundfive-year highs on Monday, bolstered by a crop of strongearnings but with investors reluctant to put on big bets at thestart of a bumper U.S. data week.

Shares in Philips jumped 5.8 percent after theDutch healthcare, lighting and consumer appliances groupreported a near tripling in its third-quarter net profit.

Investors were also encouraged that German business softwarecompany SAP maintained its full-year outlook, despitecurrency risks, and by better-than-expected revenues from paintsand chemicals company AkzoNobel. Their shares rose 5.1and 5.8 percent, respectively.

"The sell-side is still very pessimistic on Europeanequities ... We think that is a bit too pessimistic given thatthe outlook for the euro area is that growth will pick up fromhere, so we see some nice potential in European equities," saidPeter Garnry, equity strategist at Saxo Bank.

Although the European third-quarter results season is lessthan a tenth of the way through, the early numbers have beenfairly positive, with earnings on average 3.3 percent aboveforecasts, in contrast to a broadly in-line performance in theUnited States, according to Thomson Reuters StarMine.

"The drivers for Q3 are mixed: the macro backdrop indeveloped markets has improved further, and leading indicatorsfor the euro zone in particular have seen a synchronised upturn,but emerging markets have deteriorated," analysts at UBS said ina note, highlighting Pearson, Melia Hotels andITV among stocks that could surprise on the upside.

"Elsewhere, FX becomes a headwind; commodity prices havepicked up, which should provide some support to the miners; butour oil & gas team expect a tricky results season ahead."

The FTSEurofirst 300 was flat at 1,277.75 points by 0720GMT, after hitting fresh five-year highs.

Traders though said activity was likely to be jittery aheadof a bumper crop of U.S. data, starting with existing home saleson Monday and including the keenly watched non-farm payrollsreport on Tuesday.

A last-minute U.S. fiscal deal last week averted the risk ofa sovereign default for now, enabling the government to reopenand ending a near three-week long drought of official datareleases. The delays in the data coupled with the economicfallout from the government shutdown are now expected to delayany policy tightening from the U.S. Federal Reserve, to therelief of equity markets.

"Uncertainty is still there but it's less than it was ... wehave had the (U.S. debt) deal and we've reached new highs, ourexpectation is still that we will have a year-end rally," saidSaxo's Garnry.

"Unless the macro data suddenly turns negative I don't seethe risk of major drawdown in equities."

Underscoring the positive investor sentiment, data from EPFRshowed that European equity funds enjoyed their biggest weeklyinflows in two years in the week to Oct. 16.

Rates

View Comments (0)