European shares dip on high yields and profit-taking

European stocks ended lower on Thursday, even as bank shares hit 14-month highs on strong quarterly earnings, as a rise in euro-zone bond yields saw investors lock in profits at near-record levels.

The pan-European Stoxx 600 index fell 0.3 per cent to 438.77, coming further off a record peak of 443.61 hit last week. Traders cited the pullback to investors taking in profits after “stellar results”. The Stoxx 600 had surged to record highs on anticipation of a strong earnings season, as well as optimism over steady Covid-19 vaccination programs.

Bank stocks were the best performers for the day, as Standard Chartered added another notch to a series of strong earnings reports this week, including those from HSBC and Santander. The sector was also supported by a jump in euro-zone bond yields, after US economic growth and German inflation data came in higher than expected, strengthening the case for a pullback in central bank stimulus.

Dublin

Paddy Power Betfair owner Flutter saw its shares drop nearly 3 per cent to €176.50 after it posted a 33 per cent year-on-year rise in first-quarter revenues while noting that its market-leading position in the fast-growing US market continued to "expand rapidly".

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The country's largest hotel company Dalata traded flat after announcing a first-quarter loss.

Kerry Group rose marginally to €109 after the company reported good business momentum in the first quarter of 2021 while warning that market conditions remain highly variable as a result of the pandemic. Both Bank of Ireland and AIB traded up but only moderately compared with some of their European peers. Rival Ulster Bank reported lower income and profits for the three months to the end of March as it prepares to exit the Irish market.

London

London's FTSE 100 closed flat on Thursday after hitting a one-week high hours earlier as a wave of positive corporate earnings from companies including Standard Chartered and Unilever helped the blue-chip index outperform its European peers. The index retreated after rising as much as 0.8 per cent to 7,019.71 points during the session, with Standard Chartered gaining about 5.6 per cent after posting a stronger-than-expected first-quarter profit.

Lender NatWest returned to profit in the first quarter of 2021, joining rivals in releasing some of the cash it had set aside to cover expected bad loans. Its shares, however, fell 3.4 per cent.

The banks index added about 1.5 per cent as the Bank of England launched a post-Brexit landmark rethink of regulation that would simplify rules for smaller banks.

The FTSE 100 was further supported by Unilever, which gained 3.3 per cent after announcing a €3 billion share buyback and said it was confident of hitting sales targets this year.

Europe

Travel and leisure stocks, the best-performing European sector this year, fell 0.7 per cent, coming off record highs. Automobile stocks led losses on Thursday with a 2.6 per cent fall after US carmaker Ford said a global semiconductor shortage may slash second-quarter production by half. Finnish telecom network equipment maker Nokia surged 8.4 per cent to the top of the Stoxx 600, as growth in sales of network and 5G equipment boosted its earnings.

"The majority of the reported firms sound constructive on the outlook for the remainder of the year," European equity strategists at Barclays wrote in a note, but added that the high expectations had been priced in.

Among decliners, steel pipe maker Tenaris's shares fell 6.8 per cent and were among the top losers on the Stoxx 600 after the company posted a bigger-than-expected 30 per cent fall in first-quarter core profits.

Danish wind farm developer Orsted fell 6.7 per cent after lower wind speeds and cable problems hit its first-quarter earnings.

New York

The S&P 500 hovered near record highs on Thursday, helped by gains in Facebook and upbeat economic data, while the Nasdaq eased as investors locked in profits from certain megacap technology firms. Seven of the 11 major S&P 500 sectors were trading higher, with communication services stocks leading gains.

Facebook jumped 5.8 per cent to an all-time high after beating market expectations for quarterly revenue and profit, helped by a surge in digital ad spending during the pandemic and higher ad prices.

Apple, however, slipped 0.5 per cent despite posting sales and profit ahead of Wall Street estimates on strong iPhone and Mac sales. Shares of other high-flying stocks including Microsoft, Tesla and Amazon fell between 0.1 per cent and 3.3 per cent.

"Apple and Microsoft both had high expectations . . . while they did exceed consensus estimates, a lot of it was priced in, so there is some profit-taking coming in," said Thomas Hayes, chairman of Great Hill Capital. – Additional reporting: Reuters