Weak corporate statistics push European stocks sharply lower

On Friday, the key European stock indices declined amid fresh UK statistics. Moreover, investors continue to analyze weak corporate earnings reports for the third quarter of 2022 from European top companies.

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At the time of writing, the composite indicator of Europe's leading companies STOXX Europe 600 fell by 1.5% to 392.81 points.

The French CAC 40 lost 1.55%, the German DAX sank by 1.33%, and the British FTSE 100 dropped by 0.6%.

Top gainers and losers

The stocks of German manufacturer of sports goods Adidas dropped by 8.5%. Earlier, the company's management lowered its financial forecast for 2022 for the third time since the start of the year amid weak demand for goods and COVID-19 restrictions in China.

According to the preliminary reports for the third quarter, Adidas's profits from continuing operations fell 2.7 times as the company wound down its business in Russia.

Meanwhile, the quotes of Adidas's biggest competitors German Puma and British JD Sports Fashion sank by 5.6% and 5.3% respectively.

The market capitalization of Swedish telecommunications operator Telia plummeted by 8.2%. In the third quarter of fiscal 2022, the company increased its net profit by 8% to $151.8 million, while analysts had previously forecasted growth of up to €2.1 billion.

The stocks of French media conglomerate Vivendi decreased by 4.2%. In July and September, the company increased its revenue by 4.1% to €2.578 billion. However, the revenues of its television division Canal + Group dropped by 3.3% to €1.419 billion. This figure is considered much worse than the consensus forecast of analysts.

The stocks of French cosmetics maker L'Oreal fell by 4.3%, and the shares of the owner of luxury fashion brands Kering SA sank by 4.4% despite the strong reports of the companies for the third quarter.

The stocks of French carmaker Renault dropped by 2.2%. At the same time, the company reported stronger revenue growth in July-September than market forecasts.

The market capitalization of British food delivery service Deliveroo Plc rose by 3.2%. In the third quarter of fiscal 2022, the company's gross transaction volume advanced by 8% to $1.91 billion.

The stocks of French-Italian luxury eyewear company Essilor Luxottica fell by 2.1% despite an 8% increase in July-September revenue amid a rebound in Asia-Pacific sales.

Market sentiment

On Friday, European stock market participants focused on fresh UK statistics. According to the Office for National Statistics, in September retail sales in the UK fell by 6.9% year-on-year, and by 1.4% month-on-month. At the same time, analysts forecasted a decline of 5% and 0.5% respectively. They believe the key reason for such a sharp drop in retail sales is the limitation of discretionary spending of British consumers.

Meanwhile, borrowings of the UK government amounted to 20.01 billion pounds in September against the experts' forecast of 17.1 billion pounds.

According to the market research conducted by international analytical company GfK, the Consumer Confidence Index in the UK rose by 2 points to minus 47 points in October. This was the first increase for almost a year. At the same time, analysts expected a further decline of the indicator to minus 52 points.

Earlier, the indicator had been steadily declining for many months in a row and updated its record lows since 1974.

Previous trading results

On Thursday, European stock indexes closed in the green zone amid the news about the resignation of UK Prime Minister Liz Truss.

Consequently, the composite indicator of Europe's leading companies STOXX Europe 600 increased by 0.26% to 398.77 points. The French CAC 40 gained 0.76%, the German DAX added 0.2%, and the British FTSE 100 rose by 0.27%.

The stocks of Swedish telecommunication equipment maker Ericsson AB plummeted by 14.8%. The company's net income fell by 7% in the third quarter of fiscal 2022, which was much worse than preliminary market forecasts.

Meanwhile, the stocks of Finnish telecom company Nokia sank by 6.7% despite a 22% increase in net income and 16% increase in revenue in July-September.

The market capitalization of French producer and distributor of alcoholic beverages Pernod Ricard SA declined by 1.2%. Earlier, the company reported a 21.7% increase in its revenue in the first quarter of fiscal 2023.

The stocks of Swedish corporation Volvo AB fell by 3.8%. The company increased its net profit in the third quarter. However, the final figure was much lower than analysts' forecasts.

The stocks of Swedish manufacturer of snus, tobacco, cigars, matches, and lighters Match AB jumped by 1.9%. Earlier, the media reported that US tobacco concern Philip Morris planned to increase its offer to buy the company by 9%. At the same time, only a few weeks left before the deadline set for obtaining sufficient support from shareholders.

The stocks of Norwegian chemical fertilizer company Yara International rose by 5.5%.

The market capitalization of Spanish bank Sabadell added 4.1%.

The stocks of French luxury goods retailer Hermes advanced by 1.4% after the report of a sharp surge in sales in July-September 2022. In addition, the company said it planned to raise prices by 5-10% next year amid rising costs and currency fluctuations.

The stocks of Finnish banking group Nordea jumped by 1% due to the publication of operating income for the third quarter of 2022 above market expectations. The company explained the unexpected positive outcome for July-September by a rise in interest income.

On Thursday, Liz Truss resigned as UK prime minister. The politician had to do it amid the failed program of tax cuts, which led to the pound's collapse and a sharp jump in borrowing costs.

On Thursday, the European stock market participants were also focused on the latest statistics on Germany. According to the final estimate of the Federal Statistical Office Destatis, in September industrial inflation in the country remained at a high August mark of 45.8% in annual terms. At the same time, analysts forecasted a decrease in the index to 44.7%. This fact indicates a permanently growing inflationary pressure in the German economy.

Analysts at Destatis attribute the price increase to a 132.2% jump year-on-year in energy prices. For example, natural gas prices surged by 192.4% and electricity prices soared by 158.3%.

The market expects that weak eurozone statistics will trigger further hawkish tightening of the ECB monetary policy. At the next meeting at the end of October, the regulator may raise the interest rate by 75 basis points, which in turn could seriously exacerbate the financial problems faced by households in the EU.

On Wednesday, the news came of the sudden resignation of UK Home Secretary Suella Braverman. In her resignation letter, the politician sharply criticized the leadership of UK Prime Minister Liz Truss, raising more doubts about the length of Truss' tenure.

On Wednesday, the Federal Reserve published a regional survey. According to it, the economic outlook has become more pessimistic due to persistently growing concerns about the weakening demand.

At the same time, US economic activity has been rising gradually since early fall. However, the situation varies significantly depending on the industry and the region. High interest rates, skyrocketing inflation, and persistent supply chain disruptions were key pressures for this economic indicator.

According to analysts' preliminary forecasts, the Federal Reserve will again raise interest rates by 75 basis points at its November meeting.


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