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European shares swung back into negative territory on Tuesday after a strong start, buckling under the weight of disappointing earnings updates as strains rippled through the airline, banking and construction sectors.
Leading euro zone stocks index was down 0.4 per cent by 0930 GMT, while Germany's DAX fell 0.6 per cent and Britain's FTSE 100 climbed 0.1 per cent. Trading was fraught after the past fortnight saw heavy losses that left the pan-European STOXX 600 near a 22-month low.
US stocks were hit on Monday by a report that Washington plans to impose tariffs on all Chinese imports if no progress is made in talks between presidents Donald Trump and Xi Jinping. Though risk appetite revived slightly in Asian trading after Beijing made a fresh attempt to stabilise the country's markets, Europe's early rally quickly evaporated.
“There were disappointing profits from Lufthansa as well as Beiersdorf and Reckitt, which together are not a good look,” said Mike van Dulken, head of research at Accendo Markets.
Companies continued to flag the cost pressures and difficulties in the construction sector . Geberit shares were the worst performing, falling 9.1 per cent after the Swiss plumbing supplies provider cut its sales outlook and said it was more cautious about the building industry.
UBS analysts said sales had slowed to “near stagnation” and that Geberit's margin is “not fully resilient to wage/raw material inflation and FX”.
Lufthansa shares tumbled 8.9 per cent to a 17-month low after the German airline missed profit estimates for the third quarter and said it would raise its number of flights more modestly than peers this season. It was the latest airline to warn of higher fuel costs biting into profits.
“A slight shortfall in the Q3 results could be forgiven but we expect attention to focus on deteriorating trends in unit revenues and unit costs,” wrote Liberum analysts.
Beiersdorf, which owns cosmetics brands Nivea and La Prairie, fell 2.5 per cent after sales missed expectations and its rival Reckitt Benckiser also reported weaker sales.
Bank stocks also fell after results. BNP Paribas shares were bottom of the CAC 40, down 3.5 per cent after France's biggest listed bank reported weaker-than-expected third-quarter revenues, blaming its corporate and investment banking arms and its European retail banks.
Its fixed income, currencies and commodities segment saw its lowest performance since 2013, Jefferies analysts said, due to low rates activity and a “cautious approach to FX”, particularly in emerging markets. Denmark's Jyske Bank was bottom of the STOXX 600, down 9.8 per cent after its profit missed expectations.
Analysts have cut their earnings expectations for banks - the worst-performing European sector this year - to the lowest since February 2016. Strong earnings from BP and Volkswagen were the bright spots, helping limit losses.
A beneficiary of higher crude costs, BP jumped 4.2 per cent after the oil major's profits soared to a five-year high. Its gains boosted the oil & gas sector index up 0.5 per cent.
Volkswagen topped the DAX with a 2.5 per cent gain after the carmaker's profit beat forecasts - bucking the trend in the autos sector hurt by slower car sales and more stringent anti-emissions regulations. Genmab was another strong gainer, up 6.2 per cent after positive results for a phase 3 MAIA study of its Daratumumab drug.
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