European shares flat as energy firms counter tech, healthcare drag

By Amruta Khandekar

(Reuters) -European shares were flat on Friday, as a slump in technology stocks following software maker SAP’s downbeat forecast and declines in the healthcare sector were offset by gains in energy companies that tracked oil prices higher.

The pan-European index held steady at 463.72 points by 0831 GMT after closing at a one-month high on Thursday.

The index was set for slim weekly rise of 0.6%, largely driven by a rally in British shares following evidence of slowing domestic inflation. But concerns about China’s weak economic recovery and weakness in the technology sector amid the earnings season capped gains.

SAP fell 4.8% after the business software maker trimmed its full-year outlook for key cloud sales, dragging index down 0.5%.

Europe’s technology sector, already the biggest decliner among major sectors this week, fell 1.0%.

“The technology hardware sector has been on our least preferred list for most of this year, (but) we do favour software, so it’s a bit of a balance,” said Sutanya Chedda, European equity strategist at UBS.

Artificial intelligence could be a positive for software but weak sentiment and earnings could hurt the hardware sector, Chedda added.

Healthcare shares were also a big drag, with Lonza down 9.0% after the Swiss contract drug manufacturer cut its full-year outlook.

The mining sector dropped 1.7%, also hurt by a raft of disappointing results.

Swedish steelmaker SSAB slumped 14.8% to the bottom of the STOXX 600 after its operating profit halved in the second quarter, while Hydro fell 2.9% after the Norwegian aluminium producer raised its capital expenditure guidance.

Keeping declines in check, energy firms gained 0.5% as oil prices edged higher, with investors assessing chances of further stimulus from China. [O/R]

Investors are now focussed on another round of major central bank policy meetings next week for more clues on the global interest rate trajectory.

Deutsche Bank (ETR:) said it expected the European Central Bank to hike the deposit rate by 25 basis point to 3.75% on July 27 but added that a further hike in September cannot be ruled out, given the ECB’s commitment to bringing inflation under control.

Thales slipped 4.6% despite a guidance raise by the defence electronics firm, with Jefferies pointing to revised forex assumptions weighing on the outlook.

Second-quarter earnings for STOXX 600 companies are expected to fall 9.2% from the previous year, based on Refinitiv IBES data.