European shares dip as bond sell-off slows rally

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European shares dipped on Thursday as a bond market sell-off and a stronger euro took the steam out of the breakneck New Year rally in equities. Results drove the bulk of stock moves, with disappointments from retailers Tesco and Marks & Spencer weighing heavily.

The Iseq fell 0.9 per cent as a climb for Ryanair was more than offset by weakness in food group Kerry and a fall for building materials group CRH.

Ryanair rose 1.65 per cent to €15.76, as the stock continued its recovery following the flight cancellation and pilot rostering issues that emerged in September. Although it remains below its mid-2017 trading level, investors appear confident that the airline’s business model remains intact.

CRH dropped 1.8 per cent to €30.46, while Kerry fell 2.4 per cent to €86.60 as food stocks – seen as a defensive play – faded from highs of last year. There was strength in financial stocks across Europe, with Bank of Ireland adding 0.7 per cent to €7.88, while housebuilders Cairn Homes and Glenveagh added 2.1 per cent and 0.8 per cent respectively.

The FTSE 100 touched a fresh record and ended 0.2 per cent higher, despite falls for UK retailers Tesco and Marks & Spencer after their Christmas trading updates disappointed.

Marks and Spencer shares sank 7 per cent, the biggest loss on the FTSE, after sales fell in the last quarter of 2017, hampering the British retailer’s latest attempt at a corporate turnaround. Tesco fell 4.5 per cent as the country’s biggest retailer missed forecasts for Christmas trading as lower demand for general goods offset strong sales of fresh food.

Sainsbury’s, Britain’s second-largest supermarket, and fourth-ranked Morrisons both beat forecasts for Christmas trading but fell 2.1 per cent and 1.4 per cent respectively. Mid-cap retailer Card Factory slumped 20 per cent after its Christmas update.

Grafton Group, the owner of Woodies DIY group, rose 6.6 per cent after it said its revenues had increased 7 per cent on the back of strong merchanting business in Ireland and the Netherlands.

Stronger metal prices pushed up big mining companies, including Anglo American, Rio Tinto and BHP Billiton, while among the gainers, Just Eat led with a rise of 4.7 per cent, underpinned by a Barclays upgrade to “overweight” on expectations of strong revenue momentum.

The pan-European Stoxx 600 and euro zone equities ended the session 0.3 per cent lower, extending sharp losses in the previous session. Germany’s Dax closed 0.6 percent lower, the Cac 40 was down 0.3 per cent.

Europe’s retail sector fell 1.3 per cent, while bank stocks, which had jumped on Wednesday as bond yields surged, extended gains to end 0.4 per cent higher.

Danish jewellery firm Pandora dropped nearly 11 per cent after the company said it expected profit margins to fall in the next few years and reported 2017 revenue below expectations.

Sweden-headquartered technology group Hexagon jumped up 5.8 per cent after its CEO was cleared of insider trading charges. While it is too early in the season to fully determine what impact results are having, investors said earnings will be under particular scrutiny this year as the market hopes for another year of earnings growth.

Wall Street surged to fresh highs on Thursday as rising oil prices lifted energy stocks and upbeat forecast from second largest US carrier Delta Air Lines drove airline stocks higher.

Brent crude rose above $70 a barrel and US crude rose 1.57 per cent to $64.58 per barrel, its highest since December 2014, boosted by a surprise drop in US production and lower crude inventories.

Chevron rose 3.2 per cent and Exxon 1.5 per cent, helping the S&P energy index gain 2.24 per cent and putting it on track for its best percentage gain in more than seven months. Delta Air Lines rose about 2 per cent after reporting upbeat quarterly profit as well as forecast, helped by higher business fares in a busy holiday season.

(Additional reporting: Reuters.)

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