European shares fell on Wednesday in a broad-based pullback as rising tensions over Syria added to market worries, although solid results from Tesco and strength among telecoms stocks were a bright spot. The pan-European STOXX 600 index ended the session down 0.6 percent. This follows gains on Tuesday when the mood was buoyed by a speech from Chinese President Xi Jinping which soothed worries over a possible trade war with the United States.
The Syrian tensions intensified on Wednesday after US President Donald Trump warned Russia of imminent military action in Syria over a suspected poison gas attack, declaring that missiles "will be coming". "Market sentiment has turned sour again... as investors are becoming increasingly concerned about the possibility of a military response by the United States to the suspected chemical weapons attack in Douma (Syria) last weekend," said UniCredit in a note.
Europe's air traffic control agency warned airlines to exercise caution in the eastern Mediterranean due to the possible launch of air strikes into Syria in the next 72 hours. Still, investors found comfort in some good earning updates and merger and acquisition activity. Tesco was one of the top STOXX gainers after the British supermarket group beat guidance with a 28 percent rise in full-year profit, helped by a strong end to the year in its home market, underlining the recovery under CEO Dave Lewis. Its shares jumped more than 7 percent.
Jefferies affirmed its buy rating on the stock, highlighting Tesco's strong outlook. The company, which competes with Sainsbury's, Walmart's Asda and Morrisons, said it was firmly on track to deliver its medium-term targets. "The visibility of strong earnings delivery appears well supported by an improving UK backdrop and Booker synergies," Jefferies said. Deutsche Telekom rose 2.2 percent after reports that Sprint had restarted talks to merge with the German group's US unit T-Mobile US Inc.
"(This is a) clearly positive trigger for battered Deutsche Telekom shares. A chance to strike a deal revives the fantasy for huge synergies," a Frankfurt-based trader said. Its gains lifted the telecoms index 0.1 percent, making it one of just three European sectors in positive territory. However Swiss chocolate maker Barry Callebaut was the biggest faller, down 8.4 percent and giving up early gains after saying that it expected growth to slow after a robust first half.
Overall, STOXX 600 earnings are expected to rise 3.4 percent in the first quarter with sales up 1.1 percent, according to Thomson Reuters data. First-quarter earnings growth for the S&P 500 in the United States is seen up 18.5 percent.
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