European shares climbed back towards five-year highs on Thursday thanks to a clutch of strong corporate results and encouraging manufacturing data from top metals consumer China. Autos were the top-performing sector, rising 1.7 percent after Germany's Daimler lifted its forecast for the final three months of the year following a better-than-expected third quarter. Its shares rose 3.3 percent.
Strong results also boosted financials, with forecast-beating numbers from Nordic banks DNB and SEB helping to partly overshadow investment bank weakness at Credit Suisse. Adding a note of caution into the earnings season, some strong results - such as from drugmaker Shire or industrial group ABB - were helped by lower costs. Still, investors bet on a further improvement in profits into the new year.
"In Europe, the outlook could be a bit more mixed or a bit more negative than the US, and sales are falling while earnings are a bit better, so it's a margins game," Bank Julius Baer head of strategy research Christoph Riniker said. "But looking into next year, we still think that earnings should become better again - roughly 10-11 percent on EuroSTOXX 50 - and our quite constructive picture on equities remains unchanged."
The pan-European FTSEurofirst 300 index was up 0.5 percent at 1,285.89 points, recovering after the previous session's fall and climbing back towards Tuesday's five-year highs of 1,291.93. Miners were also among the top gainers, cheered by the prospect of an early dividend payout at Fresnillo and by news that growth in China's private manufacturing sector hit a seven-month high in October, according to a purchasing managers' survey.
"The world's second-largest economy picking up steam is certainly good news for the mining sector, and it looks like the recent (broader market) rally will continue until the year-end," said Mark Ward, head of trading at Sanlam Securities. UBS commodity strategists noted upside risks to the house view and consensus on gold and silver in the year ahead.
The bank preferred precious metals stocks boasting strong returns and good cost control, like Fresnillo, or industrial miners with low production costs and the potential to raise cashflow sharply, namely Rio Tinto and BHP Billiton . Others, though, were more cautious on the mining sector, with Thomson Reuters StarMine SmartEstimates forecasting third-quarter earnings will miss consensus by 0.7 percent.
Excluding Thursday's numbers, only 53 percent of STOXX Europe 600 companies which have reported to date earnings have beaten or met forecasts, roughly in line with the last three quarters. A strong rally has seen the STOXX 600 re-rate to a price-to-earnings ratio of 13.29 times against a 10-year average of 12 times, according to Datastream, so focus is falling on corporate earnings, which are under pressure to justify the re-rating. "So far, the year-to-date equity rally remains a multiple expansion story and doubts arise on how sustainable this can be in case earnings revisions do not turn around any time soon," Deutsche Bank said in a note.
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