European Markets Lack Direction, Rolls Royce Leads Aerospace Sector Lower

Lucy Stoeva
12 Nov, 2015
New York City

After a short rebound inspired by the hope ECB action, European markets plunge back in negative territory on disappointing corporate news. Profit warning from Rolls-Royce dragged aerospace stocks down. Siemens AG announces a buyback program.

[R]4:00 PM Frankfurt – After a short rebound inspired by the hope ECB action, European markets plunge back in negative territory on disappointing corporate news. Profit warning from Rolls-Royce dragged aerospace stocks down. Siemens AG announces a buyback program.[/R]

In a choppy trading session on Thursday, European markets briefly rebounded after a speech by the ECB president raised expectation of more economic stimulus.

In the afternoon, however, markets turned lower after high-profile corporate profit warnings depressed the market sentiment.

In London trading, FTSE 100 index lost 32.87 or 0.52% to 6,264.22 and in Frankfurt the DAX index fell 38.60 or 0.35% to 10,869.47.

In Paris, CAC 40 index tumbled 39.73 or 0.80% to 4,912.78.

In a speech to the European Parliament, Mario Draghi, the president of the European Central Bank, signalled that the ECB is likely to review its monetary policy in December because of weakening inflation indicators.

Draghi said the bank would closely monitor the risks to price stability and will assess the persistence of the factors that were slowing the return of inflation to levels close to 2%.

""At our December monetary policy meeting, we will re-examine the degree of monetary policy accommodation,"" Mr. Draghi said.

While investors expect further policy easing in December, they remain cautious and wait for further indications on the economic outlook.

Rolls-Royce Holdings Plc dived 21.06% to 527 pence after the U.K-based turbine engine maker issued its fourth profit warning in a year and downgraded its expectations for 2016.

Rolls-Royce said the reason for the disappointing results is the sharply weaker demand for spare parts and services to existing aero-engines. The three main areas of weakness are corporate jets, servicing of the firm''s engines, and offshore marine markets.

Profits for 2015 would be at the low end of expectations.

More job cuts among senior managers are expected as Rolls-Royce is carrying out a review of its business. The company had previously announced 3,600 job cuts.


A review of the shareholder payments policy is likely to lead to a decline in dividend payments.

The news from Rolls-Royce took the entire aerospace industry stocks down.

In Paris, Dassault Aviation SA lost 2.16% to €1,054 and Airbus Group SE tumbled 4.27% to €63.71.

In Frankfurt, MTU Aero Engines AG fell 2.83 to €85.51, while Meggitt PLC declined 3.44% to 370 pence in London.

Another profit warning came from RWE AG and the largest German electric utility company lost 8.75% to €11.37 after the company said its earnings would be lower than expected due to weak power prices and tighter environmental regulations.

Adjusted after-tax income fell to €545 million in for the nine months ending in September, compared with €763 million in the same period last year.

The company will barely meet a year-end profit target of €1.1 billion to €1.3 billion euro, but at the low end of the range.

Investors were also alarmed on possible changes in dividend payment policy.

RWE warned that its Npower unit in the U.K. is expected to report an operating loss in 2015.

On the positive side, despite a disappointing earnings report, Siemens AG jumped 3.9% to €95 after the German industrial company announced plans to return more cash to shareholders through a share buyback program and dividend payment.

The buyback program will reach up to €3 billion over the next three years.

The company proposed a dividend of €3.50 for fiscal 2015, up 6% from the previous year.

Net profit fell to €959 million in the three months ended September from €1.45 billion in the previous year.

Revenue increased 4% to €21.33 billion and new orders jumped 15% due to the weakness of the euro.