Europe Inc’s earnings give market optimists more hope

LONDON (Reuters) – Earnings from major European companies on Wednesday provided some reason for optimism about the health of companies in the region, even as investors worried about a slowing global economy.

Fourth quarter earnings from ASML Holding NV (ASML.AS) Exceeding expectations, the Dutch tech company, Europe’s largest, predicted 2023 sales would rise by more than 25% despite possible new restrictions on exports to China.

CEO Peter Weinink said that although economic uncertainty and rising semiconductor inventories clouded the outlook, customers see conditions improving towards the end of the year and the Chinese economy recovering after the end of COVID-19 restrictions.

“This means that demand is still higher than what we can handle,” he said. Shares in ASML tumbled after the results, having recently surged to their highest levels since last April.

Shares of low-cost airline EasyJet jumped more than 10% to their highest since June after it said it expected to beat market expectations this year on the strength of summer bookings.

Ryanair rivals (RYA.I)Wizz Air (WIZZ.L) and owner of BA-IAG (ICAG.L) They got a boost, too, as investors cheered the latest evidence that people won’t sacrifice their vacations even as double-digit inflation leaves them with less money to spend.

Helped by strong orders in Europe, French train maker Alstom (also ALSO.PA) It reported an 8% increase in sales for the third quarter. Its shares fell after hitting their highest levels in nearly a year in early trading.

While it’s still early in corporate earnings season, the results offer some hope that the recent economic data that has boosted stocks this month is grounded in reality.

Expectations that the economy will hit a soft landing in 2023 have grown as a result of China reopening after three years of zero-COVID policies and the fact that Europe managed to keep the lights on through the winter, aided by warmer weather and increased-up power capacity.

Kristalina Georgieva, managing director of the International Monetary Fund, said last week that the fund’s new global growth forecast for 2023, which is due to be presented soon, may be revised upwards slightly from the current 2.7% — a shift from the bleak tone that characterized it at the start of the year.

Even Germany, one of the economies most vulnerable to last year’s energy price hikes, is now expected to avoid a recession in 2023.

French central bank chief Francois Villeroy de Gallo said last week that the eurozone appears more resilient than expected and should avoid recession this year.

A major US survey showed on Monday that companies see lower odds that the US is already in a recession or will fall this year.

This greater economic optimism, in turn, has fueled hopes that the corporate decline may not be as severe as feared just a few weeks ago.

The pan-European STOXX 600 index (.STOXX) It has risen more than 6% since the beginning of the year, hitting its highest level since April last week after better-than-expected economic data.

The index is on track for its best January since 2015. It ended the day down 0.45%.

Thursday’s results from SAP Heavy (SAPG.DE)Nokia (NOKIA.HE)Diageo (DGE.L) and LVMH (LVMH.PA) It will be an additional test.

hardly any growth

However, expectations for fourth-quarter 2022 earnings and revenue have dampened further, with Tuesday’s Refinitiv I/B/E/S data suggesting European companies will see barely any revenue growth.

Sentiment on Wall Street also took a turn, as did Microsoft (MSFT.O) The outlook weighed on technology stocks, and after a bleak quarterly report from Boeing.

“After two strong days on Wall Street on expectations that the Fed is about to pause, earnings are looking a bit choppy,” said Neil Wilson, analyst at Market.com.

AT&T Inc (Tennessee) Expect annual profit below expectations while the US defense contractor General Dynamics (GD.N) The company reported better-than-expected earnings in the fourth quarter, helped by higher demand for weapons at its unit that produces Abrams tanks and combat systems.

Tesla (TSLA.O) It will release a report after the market closes later on Wednesday.

Not everything was rosy in Europe. Swiss perfume and flavor maker Givaudan (GIVN.S) It reported sluggish year-end sales, adding pressure to margins in a year marked by rising input costs and supply chain disruptions.

Swiss asset manager GAM (GAMH.S) Meanwhile, it warned of earnings after suffering negative asset flows, which sent its shares down 2.5% in early morning trade.

($1 = 0.8115 pounds)

Reuters newsroom report. Writing by Josephine Mason; Editing by Catherine Evans

Our standards: Thomson Reuters Trust Principles.