European Markets Extend Gains, Weak Resource Sector Weigh on FTSE

Lucy Stoeva
18 Feb, 2016
New York City

European markets gained on renewed hopes of more stimulus from the European Central Bank, but profit taking in resource stocks weighed on the U.K. market. Air France-KLM soared 11% after reporting its first annual profit since 2008. Nestl

[R]4:00 PM Frankfurt, Germany – European markets gained on renewed hopes of more stimulus from the European Central Bank, but profit taking in resource stocks weighed on the U.K. market. Air France-KLM soared 11% after reporting its first annual profit since 2008. Nestlé saw a slowdown in sales.[/R]

European markets advanced on Thursday on reinforced hopes for more stimulus measures from the European Central Bank, but profit taking in resource stocks weighed on the U.K. market.

The ECB’s January minutes of meeting showed policy committee’s resolve to keep the inflation target of 2% but members also recognized the downside risks for the economy have increased since December.

The statement also boosted expectations for additional measures to stimulate the economy at the next ECB’s meeting in March.

Oil prices increased after an unconfirmed drop in U.S. inventories and support from Iran for the plan of Russia and Saudi Arabia to limit the oil output.

Brent crude oil futures increased 2.5% to $35.35, while West Texas Intermediate crude oil gained 2.97% to $31.94.

The U.K. market, however, was dragged down by heavyweight miner Anglo American, which fell 6.9% after recording solid gain in the past four sessions in a row.

In London, FTSE 100 index dropped 45.94, or 0.76% to 5,984.38, while in Frankfurt, the DAX index added 116.17, or 1.24%, to 9,493.39.

In Paris, the CAC 40 index rose 22.73, or 0.54%, to 4,256.20.

Accor SA gained 2.7% to €35.4 after the largest hotel chain in Europe reported an increase in annual profit despite the November terror attacks in Paris.

Net profit jumped 9.4% to €244 million due to improved revenue in most markets and restructuring efforts.

Operating earnings rose 11% to €665 million and sales increased 2.3% to €5.58 billion.

In France, sales declined 6.6% in the fourth quarter due to the terror attacks, and 0.5% for the year as tourists canceled reservations and conferences were rescheduled in November and December.

The company is acquiring 30% in Oasis Collections, an American private rental marketplace, and 49% Squarebreak, a start-up for high-end rentals in France.

Air France-KLM SA soared 10.7% to €8.24 after the airline posted its first annual profit since 2008, on the jet fuel cost, lower operating costs, and growth in passengers.

Operating profit was €816 million, compared with loss of €129 million for 2014.

The collapse of oil prices reduced the fuel expense by 6.7% to €6.18 billion.

The November attacks in Paris resulted in revenue drop of €120 million in the fourth quarter.

Net debt decreased €1.1 billion to €4.3 billion.

However, Air France-KLM warned that lower ticket prices would negate the benefits of cheaper fuel in 2016 and the global context remains highly uncertain.

Cap Gemini S.A surged 4.3% to €75.87 after the French IT services company reported 20% increase in 2015 operating profit and forecast a better operating margin for 2016.

Operating profit rose to €1 billion from €853 million in 2014, while revenue jumped 12.7% to €11.9 billion.

Operating margin improved to 10.6% from 9.2% in 2014.

For 2016, Cap Gemini forecasts revenue growth 7.5% to 9.5% and operating margin of about 11%.

Nestlé SA tumbled 4.4% to 70.85 Swiss francs after the food conglomerate reported slowing sales because of weakness in emerging markets and the expensive Swiss franc.

Investors were also disappointed by the absence of a buyback program, given the weak results and the 150th anniversary of the company.

Net profit dropped to 9.1 billion Swiss francs from 14.46 billion francs in 2014.

Sales declined to 88.8 billion francs from 91.61 billion francs last year. The company said the currency impact reduced sales by 7.4%.

Nestlé expects 2016 to remain challenging, especially during the first six months.