European shares seek floor after sell-off but oil slump weighs

Milan (Reuters): European shares slipped on Friday but were set to end the week flat as the market sought a floor following a sell-off sparked by expectations of tightening monetary conditions.

The STOXX 600 index fell 0.2% but remained above the 11-week low hit in the previous session, when European Central Bank minutes showed the euro zone rate-setters had left the door open to scrapping its bond-buying pledge.

The ensuing spike in government bond yields across Europe sent regional benchmarks falling by more than 1% at one point on Thursday, with rate-sensitive stocks like utilities leading the fall.

“Bund yields have broken above an important resistance and the trend is downwards but assets should find some support from short-term oversold conditions,” said Giuseppe Sersale, fund manager at Anthilia Capital in Milan.

The pan-European index is up 0.1% so far this week following four straight weeks of declines. Last week the index fell more than 2%, as investors fretted over comments from ECB Chairman Mario Draghi indicating the central bank could begin to tighten monetary policy.

The oil and gas index, the worst sectoral performer so far this year, led the declines on Friday, down 0.9%.

Oil majors Total and Royal Dutch Shell fell more than 1% as oil prices were hit by news of a rise in U.S. production following earlier reports that OPEC output was also growing.

Carrefour was the biggest STOXX faller, down 3.8% as concerns over profit margins overshadowed stronger-than-expected sales growth at the world’s second-largest retailer.

The French group said sales growth accelerated in the second quarter, beating expectations and reflecting an improving performance in its core French market and robust sales in the rest of Europe.

But Deutsche Bank cut its earnings-per-share expectations for Carrefour, saying uncertainty regarding margin pressure will probably weigh on the share price in the short term.

Rate-sensitive utilities rose 0.8%, as market talk of possible takeover interest in Centrica helped the sector rebound following losses due to expectations over rising rates in the region.

Blog WallStreetWires reported “rumours” that a consortium of foreign investors could be interested in the company but analysts at Jefferies says such a deal was unlikely.

In the same sector, Innogy and E.ON and RWE were also stronger, buoyed by supportive broker moves.

Banks, which instead benefit when rates rise, were weak following their recent outperformance.

An Exane BNP Paribas downgrade of multiple European broadcasters sent the media index down 1.1 percent to lead sectoral fallers in Europe.

Analysts at the French broker said “anemic” TV advertising growth was likely to flatten or even dip into negative territory, warning that most broadcasters could cut their outlook in their upcoming earnings updates.