Defensives drag European shares lower; Apple suppliers jump

LONDON: European shares reversed early gains to turn lower on Tuesday as heavy losses among defensive consumer staples and real estate stocks outweighed strength in autos, miners and banks.

The pan-European STOXX 600 edged down 0.3 percent, while euro zone stocks and blue-chips dipped 0.1 percent, in muted trading punctuated by early earnings updates and more corporate deal-making.

Consumer staples including food and drink companies and household goods were the biggest drags, with real estate stocks also falling 0.9 percent.

Autos stocks were a bright spot, up 0.8 percent, after data showed Chinese passenger car sales rose.

"We note that defensive equity sectors earnings have generally weakened while cyclical sectors keep their positive momentum," said Valentin Bissat, equity analyst at Mirabaud Asset Management.

"Overall for the region, the equity risk premium has decreased, which in turn increases companies' buybacks, a trend which is likely to continue in the short term as reduced uncertainties and a cyclical recovery decrease the necessity to hold liquidity in cash," Bissat added.

Pearson wiped out early gains to fall to the bottom of the STOXX, down 3.5 percent after selling a 22 percent stake in publisher Penguin Random House.

Analysts at Liberum, which has a 'sell' rating on the restructuring education publisher, were sceptical over the details of the deal.

Marks & Spencer reported a rise in full-price sales, but its shares fell 1.9 percent, partly on the back of underwhelming food sales, while rivals Tesco and Morrisons rose.

Broker notes spurred some of the biggest individual moves, with semiconductor makers STMicro and AMS top gainers after JP Morgan raised STMicro - a supplier to tech giant Apple - to 'overweight'.

"We believe that the market is too cautious on STMicro," wrote European tech analyst Sandeep Deshpande.

Deshpande also said Apple suppliers would have a strong second half, calling the market too sceptical and predicting the semiconductor stocks would meet or beat expectations.

Among the top individual drags on the STOXX 600 were Randstad and Adecco, targeted by Deutsche Bank in a note on staffing firms.

Analysts at Deutsche cut ratings for the world's two largest staffing companies, saying current employment levels in the United States and Europe were associated with peaking 12-month investor returns.

British recruitment firm Hays followed its European peers down 2.4 percent.

Meanwhile, in the incipient European earnings season, a strong update from Danish insurer Tryg pushed it up 3.5 percent to a two-year high. Berenberg analyst Iain Pearce said a special dividend could be expected at year-end.

Steel industrials firm Thyssenkrupp rose 2.3 percent after saying it would cut 2,000 to 2,500 jobs by the end of the 2019/2020 fiscal year.