Equities retreat as euro zone crisis hits profits

Ericsson, Renault, Saint Gobain and Publicis were among those announcing weak numbers or cutting outlooks, adding to caution about the health of corporate finances from below forecasts results at global giants Apple and Amazon overnight.

So far, 40 percent of European companies have missed third-quarter profit expectations, compared with around 30 percent in the United States, according to Thomson Reuters StarMine data.

“The companies are following what the macro environment is like so you are seeing a slowdown in revenues and companies are simply not hitting their targets,” said Matt Bolduc, strategist at Saxo Bank. “The market was not really prepared for that and we are seeing now the correction in some of the companies.”

The FTSEurofirst 300 was down 0.6 percent at 1,089.01 points by 1049 GMT, taking its losses for the week so far to 2 percent and getting a further hit from euro weakness.

The EuroSTOXX 50 also fell 0.6 percent to 2,468.31 points, over 100 points below the one-month high of set last week. The failure to sustain those gains and extend them to beyond September’s peak has darkened the technical outlook on the euro zone blue chips benchmark.

“During this week it has deteriorated and there is a risk that we could break below the October low point (of 2,440.58) and that could trigger another sell off,” said Anders Soderberg, technical strategist at SEB. “We could probably put a target for next week somewhere around 2,416 points.”

From a fundamentals view point, earnings are also expected to keep the market under pressure, with S&P Capital IQ forecasting more disappointment from cyclical sectors which are less protected from the ailing health of the global - and especially domestic - economy.

Ericsson was the top faller on Friday, down 4.4 percent, after posting a slightly smaller than expected 42 percent drop in quarterly profit on shrinking margins, staying cautious on outlook and announcing more cost cuts to cope with the global economic slowdown.

Publicis brought more bad news for the advertising sector - seen as a bellwether for the global economy - reporting a marked slowdown in its organic growth in the third quarter a day after rival WPP cut revenue outlook.

Falling demand in Europe prompted building materials group Saint-Gobain to warn that 2012 profits would suffer more than previously expected, while car maker Renault said volumes will fall short of last year’s.

The protracted recession in the euro zone is also hurting banks, prompting Standard & Poor’s to cut the credit ratings of several French banks including BNP Paribas, and put others like Societe Generale and Credit Agricole on negative outlook late on Thursday.

Shares in BNP dropped 3.3 percent and banks were the biggest drag on the FTSEurofirst 300, taking 1.7 points off the index.