Europe Inc earnings offer market optimists more hope

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LONDON, Jan. 25 (Reuters) – Earnings by major European companies on Wednesday provided some grounds for optimism about the region’s corporate health, even as investors worry about the slowing global economy.

The fourth quarter results of ASML Holding NV (ASML.AS) beat expectations and the Dutch technology company, the largest in Europe, forecast a revenue increase of more than 25% in 2023, despite possible new restrictions on exports to China.

CEO Peter Wennink said that while economic uncertainty and growing semiconductor inventories clouded the outlook, customers see conditions improving towards the end of the year and the Chinese economy recovering after COVID-19 restrictions were lifted.

“That means demand is still higher than what we can make,” he said. Shares in ASML were lower after the results, having recently rebounded to reach their highest since last April.

Shares in budget airline easyJet EZJ.L surged more than 10% to their highest level since June after it said it expected to beat market expectations this year based on the strength of summer bookings.

Rivals Ryanair (RYA.I), Wizz Air (WIZZ.L) and BA owner IAG (ICAG.L) also got a lift, as investors cheered for the latest evidence that people will not sacrifice their holidays even if inflation in double digits she leaves with less money to spend.

Aided by strong orders in Europe, French train manufacturer Alstom (ALSO.PA) posted an 8% sales increase in the third quarter. Shares reached their highest point in nearly a year.

While it’s still early in corporate earnings season, the results offer some hope that the recent economic data that has propped up stocks this month is grounded in reality.

Expectations that the economy will make a soft landing in 2023 have grown as China reopens after three years of zero-COVID policies and Europe has managed to keep the lights on through the winter helped due to warmer weather and increasing… energy capacity.

IMF chief executive Kristalina Georgieva said last week that the outlook was better than feared several months ago, so the fund’s new global growth forecast for 2023, expected soon, could be revised slightly upwards from its current 2.7 %.

Even Germany, one of the economies most exposed to last year’s rising energy prices, is now expected to avoid recession in 2023.

An Easyjet Airbus aircraft taxis close to the north runway at Gatwick Airport in Crawley, Britain, August 25, 2021. REUTERS/Peter Nicholls

French central bank chief Francois Villeroy de Galhau also said last week that the eurozone appeared more resilient than expected and should avoid a recession this year.

That greater economic optimism has in turn raised hopes that the corporate downturn will not be as severe as feared a few weeks ago.

The pan-European STOXX 600 index (.STOXX) is up more than 6% since the start of the year and reached its highest level since last week in April following better-than-expected economic data.

The index is heading for its best January since 2015.

Thursday results from other heavyweights SAP (SAPG.DE), Nokia (NOKIA.HE) and LVMH (LVMH.PA) will be a further test.

BARELY GROWTH

However, expectations for Q4 2022 earnings and earnings have fallen further, with Refinitiv I/B/E/S data on Tuesday suggesting European companies will see barely any revenue growth.

Sentiment on Wall Street also shifted overnight, with gains in Microsoft (MSFT.O) erased in post-exchange trading after warnings that revenue growth in the Azure cloud computing business would slow.

And it wasn’t all rosy in Europe. Swiss fragrance and flavor maker Givaudan (GIVN.S) reported a slowdown in year-end sales, further depressing margins in a year marked by high input costs and supply chain disruptions.

Swiss asset manager GAM (GAMH.S), meanwhile, warned of gains following negative asset flows, sending its shares down 2.5% in early morning trading.

($1 = 0.8115 pounds)

Reporting by the Reuters newsroom; Written by Josephine Mason; Edited by Catherine Evans

Our Standards: The Thomson Reuters Principles of Trust.

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