European shares retreat on euro bounce; UK flat after budget

MILAN - 22 November 2017: European shares slipped after two days of gains on Wednesday, led by the DAX, which was hit by a bounce in the euro as well as deadlock in attempts to form a new German government.

The pan-European STOXX 600 benchmark closed 0.3 percent lower, with the DAX falling 1.2 percent following strong gains in the previous session. The euro was up 0.4 percent against the dollar.

The UK budget, which had been a key focus of the day, failed to impress and had a limited impact on the broader market, though remarks from finance minister Philip Hammond highlighting Britain's economic weakness briefly weighed on the pound, supporting the export-oriented FTSE index.

The FTSE added 0.1 percent, helped by gains among big international companies including drugmaker Shire and bank HSBC Holdings, while SSP Group rallied following a strong trading update.

"The impact on markets is probably limited, but the downgrades to growth and comments on inflation are mildly negative for sterling and are likely to temper expectations for further interest rate rises, so somewhat positive for equities and bonds," said Neil Birrell, CIO at Premier Asset Management.

Britain slashed growth forecasts for its Brexit-bound economy and expects to borrow sharply more going into the next decade.

In more details, Hammond announced a review of unused planning permissions, saying compulsory land purchases could be on the cards and sending shares in Barratt Developments and other housebuilders down sharply.

Their shares partially recovered, however, after Hammond's pledge to scrap stamp duty on properties costing under 300,000 pounds ($400,000) for first-time buyers.

"This will benefit listed housebuilders which have significant non-prime exposures as well as building materials stocks such as Forterra, Ibstock and Marshalls," said Liontrust fund manager Stephen Bailey.

The STOXX 600 has seen a net rise of 0.7 percent over the last three days following a small correction earlier this month that brought the index down from two-year highs.

In spite of the wobble, JP Morgan analysts led by Ayub Hanif said they still expected equity markets to rise by year-end. According to their data, the year-end rally in Europe yields positive returns 74 percent of the time.

"Today, although our broad... framework suggests a more cautious stance, one would really need to believe in an economic growth scare before year-end to derail the rally," they said.

The biggest STOXX decliner was debt-laden telecoms and cable group Altice, which dropped to its worst level since 2014, closing down 8.8 percent.

The top gainer was travel location food-outlet operator SSP Group after it beat expectations for full-year results and proposed a special dividend. Its shares rose 8.6 percent to a record high.

Energy was among the biggest sectoral gainers in Europe, up 0.4 percent and led by Tullow Oil as oil prices remained near a two-year high, while consumer goods were the biggest decliners.

Akzo Nobel rose 1.3 percent after it called off a merger of equals with U.S. coatings company Axalta.

Norwegian media group Schibsted fell 6.7 percent following a share issue to bolster its capital and pay for possible market consolidation in online classifieds.

Thomas Cook fell 8.4 percent, it biggest one-day drop since the British EU referendum in June 2016, after the travel firm reported a fall in full-year profit margins.