European shares rebound as optimism on earnings grows

MILAN/LONDON: European shares rebounded from a 22-month low on Tuesday as optimism fuelled by the start of the reporting season and  buoyant results from Goldman Sachs from Morgan Stanley lifted investor sentiment.

The pan-European STOXX 600 index was up 1.5 percent after hitting levels not seen since December 2016 in the previous session amid fears of risings U.S. Treasury yields and a mix of geopolitical tensions.

Upbeat earnings from U.S. blue-chip companies and the top six American lenders pushed Wall Street higher, with the S&P 500  and the Nasdaq up 1.4 percent and 1.9 percent respectively.

In Europe, about 6 percent of STOXX 600 companies are due to report results this week, with the earnings season passing its mid-point during the first week of November.

Overall, third-quarter earnings for the index are expected to have risen 14 percent, according to Refinitiv I/B/E/S data, while euro zone earnings are seen up 12 percent. That compares with the 21.6 percent growth seen for U.S. companies.

"Low valuations and the recent fall in prices suggest that if we navigate this season without too much damage, then we can be constructive and look for buying opportunities," said Kairos Partners portfolio manager Federico Trabucco.

Top riser was German logistics company Kion, up 9.2 percent with UBS upgrading its rating to "buy", arguing that third-quarter results should ease market concerns.

Meggitt was also among the biggest gainers in Europe, up 7 percent after the engineering firm upgraded its 2018 organic revenue growth guidance, boosted by higher demand for its wheels, brakes, fuel tanks and other aeroplane parts.

Bellway rose 2.8 after the British housing developer launched a cost savings programme and reported a more than 14 percent rise in full-year pretax profit.

Other updates on Tuesday, however, disappointed investors.

Mapping company TomTom fell 16.4 percent as worries over the loss of a contract with Volvo overshadowed a strong update.

Merlin lost 8 percent after its trading update, where the tourist group highlighted a disappointing summer performance of its Legoland business.

BAT fell 4.6 percent after the world's second-biggest tobacco company cut its full-year revenue target for next-generation products, citing a flat market in Japan and a product recall in the United States.

Volvo fell 4.3 percent after the Swedish company warned some truck engines could be exceeding emission limits because a component was degrading more quickly than expected.