StockBeat: PMIs Help Markets Shake off Fed Disappointment

By Geoffrey Smith

Investing.com -- Europe’s stock markets shook off the disappointment of a half-hearted policy easing by the Federal Reserve on Thursday, encouraged by signs of a stabilization in the region’s manufacturing sector.

Purchasing managers indexes from around Europe (and in China) came in slightly higher than expected for July, with the eurozone manufacturing PMI ticking up to 46.5. While that still suggests the sector is contracting, it was an improvement from June 46.4, and would have been an even clearer one if France hadn’t provided a negative outlier.

Even the Brexit-affected U.K. PMI stayed at 48, defying expectations for another drop. It still remains at its lowest since immediately after the U.K. voted to leave the European Union in 2016, however.

By 5 AM ET (0900 GMT), the benchmark EuroSTOXX 600 was up 0.1% at 386.14, with Italy'sFTSE MIB, Spain's IBEX 35 and France's CAC 40 all outperforming the U.K. and German markets.

The PMI figures contrast with a mostly miserable set of earnings for the second quarter released earlier. Leading the losers, uncharacteristically, was Royal Dutch Shell (LON:RDSa), down 4.7% after weak gas prices pushed its profit down by 26% from a year earlier. The company’s other businesses, from upstream to chemicals, all reported weaker numbers and its debt-to-equity ratio rose further away from the targeted level of 20% - an unwelcome sign given that the company is still committed to a large buyback program.

Shell’s drop was exaggerated by the sharp drop in oil and other commodities overnight on the back of the Fed’s action and refusal to commit more clearly to further rate cuts. Miners and steelmakers also headed lower: Rio Tinto (LON:RIO) fell 3.2% despite the announcement of a $1 billion special dividend that reflected windfall profits from iron ore, prices for which spiked in the first half due to production problems at some of its biggest competitors.

German conglomerate Siemens (DE:SIEGn) also fell 4.9% after it reported a 6% drop in earnings in the three months to June, which chief executive Jo Kaeser blamed on “geopolitics and geoeconomics”. The company’s digital business, a key source of profit, reported double-digit drops in orders in Germany and Italy, and declines of 4%-5% in China and the U.S.

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