Europe midday: Weak earnings and inflation nerves keep markets flat

(Sharecast News) - A bunch of worse-than-expected corporate earnings across Europe and nervousness ahead of key inflation data from the US kept markets trading within a tight range on Friday, with the Stoxx 600 index more or less flat by lunchtime. The Stoxx 600 was just 0.03% higher by midday CEST, with small gains across London, Frankfurt, Milan and Madrid offset by weakness in Paris.

Stocks fell on Thursday despite the European Central Bank choosing to leave interest rates on hold after 10 consecutive hikes, saying that inflation will likely remain "too high for too long".

Shares in Sanofi, Air-France KLM, IAG, NatWest and Remy Cointreau were all under pressure on Friday after their quarterly results this morning.

According to analysts at Morgan Stanley, of the 33% of European companies that have reported third-quarter results, just 27% have beaten consensus expectations with revenues, while 40% have missed. "[Results are] yielding a net negative breadth of sales misses of -12%. While this is an improvement from early results (-19%), it is still a stark deterioration versus prior quarters," they said.

"Sector-wise, Consumer Discretionary has borne the brunt of profit warnings representing ~30% of the number of companies and ~50% of the market cap that has warned."

Meanwhile, US stock futures were edging higher ahead of inflation figures due out at 1430 CEST. The US personal consumption expenditures index - the Federal Reserve's preferred measure of inflation - is expected to have falling to 3.4% in September, from 3.5% in August, while core inflation is forecast to have eased to 3.7% from 3.9%.

"The declining trend in inflation, along with the recent increase in Treasury bond yields, contributes to the expectation that the Fed will maintain unchanged interest rates in its upcoming meeting next week," said Patrick Munnelly, market expert at Tickmill Group.

"Nevertheless, robust economic activity, as indicated by the Q3 GDP report released yesterday, could potentially complicate the longer-term policy outlook."

Sanofi leads fallers on spin-off plans, profit miss

Sanofi announced plans to split its consumer-healthcare and pharmaceutical business, as it missed profit expectations for the third quarter, causing shares to drop over 15% in Paris on Friday.

The move, which chief executive Paul Hudson said would allow it to focus on medicines and vaccines and become a "pure play biopharma company", follows similar moves by competitors Johnson & Johnson, GSK, Novartis and Pfizer, which have all spun off their consumer businesses in recent years.

The news came as Sanofi reported a 4% fall in third-quarter sales to €11.96bn, below the consensus forecast of €12.06bn. Business net profit was down 11% at €3.20bn, under estimates of €3.27bn.

Remy Cointreau tumbled after the spirits maker downgraded its full-year sales guidance as it posted a drop in first-half revenue, highlighting a slower-than-expected recovery in the US.

Both Air France-KLM and IAG were firmly lower after the airlines' quarterly results. The French-Dutch airline increased revenues by 7% to €8.66bn, but that wasn't enough to please investors who were expecting a figure close to €8.72bn; while UK-listed IAG seemingly beat consensus forecasts but underwhelmed with its outlook.

Airline stocks were likely being pressured further lower by rising oil prices on Friday, with Brent up 2.2% at $88.98 a barrel.

NatWest tanked after missing profit estimates and reporting a lower net interest margin (NIM) on the back of customers moving more cash into savings. Shares were at a two-year low, down over 10% on the day, after the bank guided to a NIM of "greater than 3%" for the full year, compared to previous guidance of 3.15%.