A generally buoyant mood among European companies staging a turnaround from the coronavirus pandemic was reflected in the better than expected financial earnings as reported on Thursday by carmaker Volkswagen, plane maker Airbus and energy major Royal Dutch Shell.
The positive outlook and the enhanced investor payouts offered by many companies also helped increase investor confidence and pushed European stocks hit record highs on Thursday.
However, concerns of higher commodity costs hitting business emerged despite strong performance being reported by Swiss foods group Nestle and brewer Anheuser Busch InBev on the same day.
A shortage of computer chips prompted Volkswagen to cut down its forecast for vehicle deliveries to customers while the same issue was pointed out by Finnish telecoms equipment maker Nokia to be a potential cause of the slowdown of its growth.
However, one thing was clear – businesses are picking up from the 2020 lows when businesses were forced to shut down or cut output because of restrictions and lockdowns imposed to curb the spread of the coronavirus pandemic.
Equities in developed markets were enjoying “a positive feedback loop in 2021, with stronger economic recovery increasing sales growth, improving margins and earnings set to rebound by 40% in 2021 in the US and Europe”, said analysts at investment house Pictet.
The largest plane maker of the world Airbus doubled its full-year profit forecast and raised its outlook for delivery of its planes – leading the way for estimate beating performance.
A sharp rise in oil and gas prices drove the second quarter profits of Shell to their highest in more than two years prompting the company to increase its dividend and announcing a $2 billion share buyback programme. Share buyback programs were also announced by other energy companies TotalEnergies and Norway’s Equinor as companies decided to hand out more of the profits to investors than reinvesting them in the business.
A strong rebound in the performance of companies in the luxury goods segment since the beginning of the year was seen earlier in the week driven by strong demand in Asia and in the United States for products from European brands such as Louis Vuitton and Gucci.
In the tech-heavy US markets, investor sentiment has been hit by the prospect of higher interest rates, along with the risk of increased regulation, which gave the edge to indices in Europe.
“In Europe, having more industry than tech is good for index profits, which I expect to be revised upwards,” said Angelo Meda, head of equities at Banor SIM in Milan.
A house-buying frenzy and improved economic outlook drove a first-half profit for Lloyds Banking Group of Britain and prompted it to announce an interim dividend.
And on Wednesday, upbeat earnings were also posted by Barclays – indicating the manner in which the ebbing of pandemic-related bad loans was recovering from the fears of pandemic losses and returning to a profit path.
“Inflation has been virtually absent for a number of years and then pointed up very sharply. It hit us directly,” said Nestle CEO Mark Schneider, adding he believed the problem was transitory.
“It’s very hard to see that inflation is not here to stay. Since the end of last year I’ve been saying we’re seeing very significant increases and it’s hard to see that they’re temporary because there is still so much demand out there,” said CEO Tony Smurfit of Smurfit Kappa (SKG.I), one of the world’s biggest packaging groups. ,
“COVID-19 is not over,” Airbus Chief Executive Guillaume Faury told reporters on Thursday.
“Levels of vaccinations are very diverse around the world and we cannot exclude that after the Delta variant there will be another one, so we believe we have to remain very prudent,” he said.
“It is going to a bumpy road in terms of recovery.”
(Adapted from USMoney.com)