Oil stocks lift European shares as US ditches Iran deal

Published: May 09, 2018 15:30:42

The German share price index, DAX board, is seen at the stock exchange in Frankfurt, Germany, November 20, 2017. Reuters/Files

European shares were supported on Wednesday by strength in oil stocks after US President Donald Trump pulled the United States out of Iran’s nuclear agreement, boosting crude prices.

While some well-received earnings updates also provided support, shares in companies with exposure to Iran fell, with plane maker Airbus and car makers Renault and PSA all trading down more than 1.0 per cent.

By 0823 GMT, the pan-European STOXX 600 had risen nearly 0.2 per cent to fresh three-month highs, while higher crude prices helped the commodity-stocks-heavy FTSE index .FTSE gain 0.4 per cent.

The oil and gas index .SXEP was the biggest sectoral gainer, up 1.5 per cent at a three-year high as crude rallied after Trump’s move on Iran raised the risk of conflict in the Middle East and cast uncertainty over global supplies.

“Whilst other signatories remain onboard, Trump’s decision potentially turns the geopolitical instability dial up a notch, especially in the Middle East,” said Accendo Markets analysts in a note.

Shares in oil majors Total, Royal Dutch Shell and Eni were all trading up between 1.1 and 2.3 per cent.

But higher oil prices weighed on travel stocks like airlines, whose sector index .SXTP was also hit by a 1.8 drop in Europe’s largest travel and tourism group TUI Group (TUIT.L), as its earnings update failed to inspire.

Elsewhere, Siemens rose 4.6 per cent after the German industrial giant raised its full year profit guidance, offsetting worries over exposure to Iran.

Analysts at Jefferies reiterated their buy rating on the stock, saying the quarterly performance of Siemens was strong apart from the results of its power and gas business.

“This was a very mixed picture from Siemens with PG taking the shine off what were actually very good results... with the core automation businesses doing especially well,” they wrote.

In the consumer sector, AB Inbev gained 2.3 per cent after a reassuring quarterly update from the world’s largest brewer, while Imperial Brands advanced 4.3 per cent after the tobacco company posted results that were slightly ahead of estimates.

Equities in Europe have recently outperformed Wall Street, supported by a weakening euro against a surging dollar, while the earnings season has also been supportive.

According to Thomson Reuters data, earnings beats on the MSCI EMU index outnumbered missed by nearly 6 to 3 so far, with first quarter growth seen at 3.2 per cent in local currency.

In M&A news, Vodafone agreed to pay $21.8 billion to buy Liberty Global’s assets in Germany and a number of other countries to take on rivals with a broader offer of superfast cable TV, broadband and mobile.

“We see the move (if completed) as positive strategically in terms of creating a stronger, converged operator,” said UBS analysts, adding that the absence of an equity issuance to fund the deal was a positive.

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