Financial market research and analysis

European stocks mixed

Corporate earnings results, election fears and a dip in the oil price all muddled in to make for mixed markets on Wednesday.

Banking profits before earnings

Bank stocks were amongst the worst performers. As of this week, the Euro Stoxx banking index is negative year-to-date. Exuberance over Trump-inspired de-regulation rolled into fears over the economic consequences of election upsets in France, the Netherlands and Germany.

A number of Europe’s biggest banks report next week so investors may be taking a little off the table ahead of what are likely to be less-than-stunning results. The steepening of the yield curve should provide some relief to Europe’s banks but we are sceptical it will translate to materially improved profits last quarter.

Homebuilders brick over Brexit fears

Well-received results from Redrow pushed homebuilder shares higher across the board. Persimmon and Taylor Wimpey were top blue-chip risers. Solid earnings coming off the back of the relatively benign white paper on housing makes us more enthusiastic about the homebuilders. As of today, UK homebuilders as a group will close above pre-Brexit levels.

With some share price declines of 30-40% on June 24^th, it’s been a nice dip to buy into. Fears of imminent economic collapse drove the extreme reaction in homebuilding shares post-Brexit. As those fears have been proven unfounded, the shares have been the biggest beneficiaries.

On the road to Rio’s dividend comeback

Rio Tinto shares dropped despite solid earnings that enabled the miner to offer a higher than expected final dividend, having axed it a year ago. Rio will also carry out a $500m share buyback. The initial reaction was positive with shares opening higher but the price drifted lower on profit-taking as shares struck a 4-year high.

A doubling of the price of iron ore and strong demand in china that saw Chinese port inventories recently hit record highs have been the fundamental drivers for Rio’s road to a dividend recovery. Industrial metal prices have come a long way in the space of a year so the likely retracement could mean we’re near a short term peak in mining company shares.

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