Daimler shines but Covid-19 restrictions may spoil wider market rally  

Worries over sustainability of  recovery in markets across Europe despite fresh range of measures being announced

European stocks are still down 11% in 2020 after Covid-19 sent the pan-European Stoxx 600 index spiralling down about 40% in March. File photo

A sudden tightening of social restrictions to tackle the resurgent coronavirus pandemic across Europe threatens to spoil any stock market boost third-quarter earnings might bring.

European powerhouses Germany, France, and the UK have announced a fresh range of measures, including curfews and limits on private gatherings, which have fuelled worries about the sustainability of the recovery.

Optimism about the burst of activity which followed the lifting of national lockdowns during the summer had raised hopes the upcoming European earnings season would help the region’s stock markets break out from the sideways movement they’ve been stuck in for months.

European stocks are still down 11% in 2020 after Covid-19 sent the pan-European Stoxx 600 index spiralling down about 40% in March.

“In the grand scheme of things, this quarter is one of overall recovery,” said Sylvain Goyon, head of equity strategy at Oddo BHF in Paris.

“There’s been an improvement in expectations and there’s a good chance economic forecasts will continue to be revised upwards.”

According to Refinitiv Ibes data, analysts expect companies on the Stoxx 600 to report an average 36.7% drop in third-quarter earnings, year on year.

“That’s better than what we had last quarter but it’s still fairly brutal,” said Philipp Lisibach, head of global equity strategy at Credit Suisse in Zurich, highlighting the 51% drop in European profits in the second quarter.

A bright spot is Daimler, whose shares surged 4.5% after the luxury carmaker posted forecast-beating third-quarter results, buoyed by a better-than-expected rebound in sales of luxury cars in September.

European car registrations rose slightly in September, the first increase this year, industry data showed, suggesting a recovery in the car sector in some markets where coronavirus infections were lower.

Daimler said it expected the positive momentum to continue in the fourth quarter, assuming there are no further coronavirus lockdowns.

Swedish truckmaker Volvo also posted third-quarter core earnings well above forecasts thanks to a healthy jump in orders.

Daimler’s third-quarter earnings before interest and tax reached €3.07bn, beating the €2.14bn consensus. 

While corporate profits in the third quarter of 2020 are expected to show evidence of a recovery, investors will be keen to see forecasts for the next quarter and 2021, if any are forthcoming.

They will be closely watching outlook statements to see how businesses fared in the weeks following the reporting period and what the impact of a potential failure of the European Union and the UK to strike a free trade agreement might be.

Investors will also be analysing how companies are controlling costs and dealing with headwinds such as a stronger euro. 

• Reuters