UPDATE 2-European shares end lower on weak earnings, rising inflation concerns

  • Reuters
  • Stock Market News
UPDATE 2-European shares end lower on weak earnings, rising inflation concerns

* Oil stocks fall despite strength in crude markets

* STOXX 600 retreats further from 1-year high

* Airbus, Orange slide as earnings disappoint (Updates to market close)

By Sagarika Jaisinghani and Ambar Warrick

Feb 18 (Reuters) - European shares marked a third straight day of losses on Thursday as a clutch of disappointing earnings reports added to concerns over a quicker-than-expected spike in inflation due to higher commodity prices and a strong euro.

The pan-European STOXX 600 .STOXX dropped 0.8%, with oil and gas stocks .SXEP leading losses despite higher crude prices. O/R

Norway's Nel ASA NEL.OL was the worst performer in the sector after it posted a wider fourth quarter loss, while UK's Royal Dutch Shell RDSa.L sank more than 3% after it announced plans to sell its Kaybob Duvernay assets in Alberta. prices - which recently raced to near pre-pandemic levels due to a production freeze in Texas - have driven up expectations that inflation may rise more than expected in the near term.

High inflation brings the two-fold risk of weighing on spending, as well as the earlier-than-anticipated scaling back of monetary policy support by central banks.

"An increase in headline inflation on the back of technical factors is the worst scenario for the European Central Bank," said Carsten Brzeski, global head of macro at ING.

"On the one hand, it could lead to financial markets pricing in higher inflation expectations and possibly even a policy reaction, while on the other hand this inflation reduces purchasing power and will be undermining if not denting the economic recovery."

Minutes from the ECB's recent meeting showed that policymakers were concerned over the euro's strength, which could hit the bloc's major export centres. benchmark STOXX 600 had jumped to a one-year high this week on optimism around a global economic recovery, but concerns over inflation and a sluggish vaccine programme swiftly pulled it off the peak.

A slate of underwhelming European corporate earnings reports on Thursday also underscored the deep impact on corporate earnings from the pandemic.

Planemaker Airbus AIR.PA fell 2.8% as it posted an annual loss and withheld a dividend due to the COVID-19 pandemic, while Orange ORAN.PA , France's biggest telecoms group, lost 2.6% after reporting a drop in core operating profit in the fourth quarter. BARC.L shed 4.4% even as it resumed modest shareholder payouts after a year-long hiatus. a bright spot, Swiss banking software system developer Temenos TEMN.S topped the STOXX 600 as it launched a share buyback programme of up to $200 million. analysts expect earnings at STOXX 600 companies to decline by about 20% in the fourth quarter before rebounding nearly 43% year-on-year in the current quarter, according to Refinitiv data.

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