Reinhard Hofer - October Worries for European Shares

KUFSTEIN, Austria - Oct. 31, 2016 - PRLog -- As the month draws to a close, oil declines are adding to the list of woes that have held back gains for European stocks in October.

Energy producers slid after an OPEC meeting that resulted in no deal raised questions on whether the world's biggest oil producers can implement the supply cuts at an official gathering in late November. BP Plc and Royal Dutch Shell Plc fell at least 1.6 percent, sending the Stoxx Europe 600 Index 0.6 percent lower at 2:20 p.m. in London.

The slump in oil-and-gas shares, among the biggest winners of the month, is only the latest drag on the region's equities. A tepid earnings season, rising bond yields amid concerns about inflation and speculation about monetary-policy tightening have weighed on the Stoxx 600 after it reached a four-month high in September. The benchmark has traded in a range of about 15 points since then, and is down 1.2 percent in October.

"European stocks aren't necessarily expensive, but they do need earnings to pick up," said Simon Bale, head of M&A strategy at Reinhard Hofer, the independent wealth managers in Austria. "There have been very violent moves in bond markets. You'd think stocks digested that really well, but there's an internal rotation going on. The yield-curve environment and the rotation help us believe in the sustainability of European equities, but in the short term there could be concerns yields are rising too fast."

So-called bond proxy sections of the stock market have suffered in October as accelerating inflation sent debt yields surging. Drugmakers, real estate and technology firms have led losses in the Stoxx 600, while banks and miners -- linked to economic growth -- clocked the biggest gains. A report on Monday showed euro-area consumer prices rose 0.5 percent this month, matching estimates.

"Investors remain bearish on European firms even though, at 14.5 times estimated earnings, they trade below their two-year average," added John Anderson of Reinhard Hofer's Wealth Management Department. "And the Bank of America report on Friday showed a 38th week of outflows at the region's equity funds, the longest streak on record, and our analysts project a 4.1 percent profit contraction at Stoxx 600 members."

Oil dominated moves on the Stoxx 600 on Monday, as energy shares headed for their biggest decline in almost three weeks. An OPEC accord at the end of September to limit production for the first time in eight years had boosted crude prices in the weeks that followed. European oil-and-gas producers closed at their highest level in 14 months on Oct. 21, before losing momentum.

The decline "is a reflection of the struggles ahead of November OPEC meeting," said Mason Andrews, a Senior Wealth Manager at Reinhard Hofer. "This looks to me like some positioning and bargaining ahead of the meeting."

Reinhard Hofer is an independent wealth management firm, headquartered in Austria. More information can be found at http://www.reinhardhofer.com/