Sliding car stocks drag Europe down as investors hit the brakes

LONDON: European shares stalled on Wednesday as weak results from the troubled autos sector dragged the market down and investors' confidence in a rally that has sent stocks shooting up this year showed signs of fraying.

Exuberance in Chinese shares over hopes for fresh stimulus failed to spill over into European trading where the STOXX 600  hovered near five-month highs, flat on the day.

"The good news is China is now easing quite aggressively. The less good news is it takes time for credit easing impact the domestic and global economies," said Nicholas Brooks, head of economic and investment research at Intermediate Capital Group.

"We think Europe will see growth pick up in the latter part of 2019 as China import demand stabilises and recent exceptional domestic factors weighing on Europe growth start to fade."

Auto stocks fell after German bearings maker Schaeffler  warned of an "extremely challenging" business environment in 2019 and said it would restructure, sending its shares down 10.8 percent.

"The midpoint of the new guidance implies 17 percent consensus earnings (EBIT) downgrades, and the 2020 guidance elimination will likely hurt sentiment," said UBS analysts.

The sector index fell 1.3 percent as German carmakers Daimler, BMW, and Volkswagen  tumbled, dragging the DAX down 0.2 percent.

Traders said the stocks were also hurt by an article in Handelsblatt saying the European Commission is preparing fines on German carmakers in an ongoing antitrust investigation. https://bit.ly/2NMg9Yn

Carmaker shares, facing a potent cocktail of slowing global growth and rising trade tariffs, have been under pressure for months.

French car suppliers Faurecia and Valeo also fell 1.4 to 2.9 percent while small-cap Swiss autos supplier Autoneum fell 9.3 percent after reporting a drop in profitability.

Results from the tech sector were more encouraging.

Logitech shares rose 1.4 percent to a four-month high after the chipmaker said it expects annual sales to increase by mid to high single-digit in the next financial year ending March 2020.

"Delivering on its medium term targets is not fully reflected in shares yet," UBS analysts said.

Dialog Semiconductor shares jumped 8.6 percent after the Anglo-German chip designer said revenue would suffer a single-digit percentage drop this year as it reduces its exposure to Apple, above analysts' consensus view.

Italy's Prysmian, the world's largest cable maker, fell 7 percent after its results were deemed a "mixed bag" by analysts and Kepler Cheuvreux downgraded the stock to "hold" from "buy".

The company revised upwards its savings expectations from a U.S. acquisition to offset provisions it has taken on its WesternLink cable connection.

Outside results, Dutch bank ING tumbled 4.5 percent in its second day of losses after a report on money laundering.

Also among top movers, British American Tobacco and Imperial Brands rose 3.5 and 1.4 percent respectively as investors bet the surprise resignation of U.S. Food & Drug Administration Commissioner Scott Gottlieb may call into question the agency's regulation of e-cigarettes.

Overall, after sharp cuts to analysts' forecasts, earnings for MSCI Europe companies are now expected to grow 5.7 percent in 2019 - down from the 9.5 percent growth expected four months ago.