FRANKFURT: European shares ended little changed on Tuesday, hovering near record highs as optimism over a strong earnings season offset caution stemming from uncertainty around the supply of energy through the Strait of Hormuz.
The pan-European STOXX 600 was flat at 660.51 points, holding near all-time highs after a recent rally driven by upbeat corporate results, as investors balanced earnings optimism against geopolitical risks in the Middle East.
“The bigger question is can that earnings momentum be sustained? The market seems to think so,” said Steve Sosnick, chief market analyst at Interactive Brokers.
“As long as the world’s energy supplies don’t get any worse, it’s reasonable to think that could occur.”
LSEG estimates show that earnings are expected to increase 22 percent in the second quarter. Excluding the energy sector, however, earnings growth is projected to be 11.5 percent.
Oil prices firmed 1.2 percent on Tuesday as traders weighed signs of progress in Iran-Oman talks against evidence of continued disruption to energy flows, with Kpler data showing traffic through the Strait of Hormuz at six vessels on Monday, compared with a 10-day average of roughly 11. Meanwhile, Bloomberg News reported, citing Pakistan’s defence minister, that the US and Iran are close to “some sort of agreement”.
Rising energy prices supported oil and gas stocks, but concerns that a prolonged disruption around the Strait of Hormuz could stoke inflation and cloud the outlook for monetary easing kept broader risk appetite in check.
“The pause this week reflects some caution around the Iran conflict and renewed pressure on oil prices. That is the key near-term risk for European markets,” said Gordon Kerr, European Macro Strategist, at KBRA.
The energy sector jumped 1.7 percent, while tech shares rose 1.1 percent, providing further support. The sector remains among Europe’s top performers this year, up about 24 percent year to date.
Investors are now awaiting euro zone employment and GDP data, as well as US consumer price figures later this week, for further clues on the path of interest rates. Among individual movers, Alcon gained 4.7 percent after the Swiss-American eye-care company raised its full-year earnings forecast.
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