J.P. Morgan cuts view on telecom sector and France Telecom
By Sarah Turner, MarketWatch
LONDON (MarketWatch) -- European shares were choppy on Tuesday, with miners declining amid uncertainty about the prospects for the U.S. economy.
The pan-European Dow Jones Stoxx 600 index (ST:SXXP 245.21, -2.67, -1.08%) declined 0.5% to 246.53, moving between gains and losses through the session.
Uncertainly on the dollar mirrors doubt about the progress of the U.S. economic recovery, with the release of much better-than-expected U.S. jobs data on Friday contrasting with Federal Reserve Chairman Ben Bernanke comments late Monday that headwinds remain for the U.S. economy.
The dollar has traded inversely to stocks and commodities in recent months and metal futures were mixed on Tuesday, with mining stocks weak. Xstrata (UK:XTA 1,045, -27.00, -2.52%) shares were down 2.3% after it disclosed an impairment charge against nickel assets.
The U.K. FTSE 100 index (UK:UKX 5,250, -60.59, -1.14%) fell 1% to 5,258.63, the German DAX index (DX:DAX 5,721, -65.26, -1.13%) lost 0.6% to 5,751.23 and the French CAC-40 index (FR:PX1 3,802, -37.64, -0.98%) fell 0.6% to 3,815.43.
Asian shares ended lower and U.S. stock futures declined. However, results from delivery firm FedEx (FDX 87.52, -0.41, -0.47%) may help to limit downside in the U.S. as in Europe.
FedEx raised its outlook for second-quarter earnings due increased international demand and cost cutting. See full story.
European rivals Deutsche Post (DE:DPW 13.40, -0.02, -0.15%) , up 0.9%, and TNT (NL:TNT 21.08, +0.75, +3.69%) , up 3.5%, advanced on Tuesday.
"For TNT we must be somewhat more cautious as most of its Express operating profit still comes from Europe, while Mail is in decline as well due to loss of market share in the Netherlands and tariffs under pressure," said analysts at SNS Securities. "We assume that the European market will improve with a 1 year delay to the U.S."
TNT also was affected by news that U.S. hedge fund manager Jana Partners and the Alberta Investment Management Corp. of Canada have each taken stakes of over 5%. Dutch newspaper, the Het Financieele Dagblad, said TNT is under pressure from activist shareholders.
Technology firms were higher, with TomTom (NL:TOM2 6.79, +0.48, +7.64%) shares up 8% after the firm was initiated with an overweight rating at Morgan Stanley, which said the current price reflects "overdone concerns of a terminal collapse" in portable navigation devices.
"On a 5-year view, we do not see TomTom as a core tech holding given the structural uncertainty surrounding its key end- market," they said in a note to clients. "However, we think results over the next 12-18 months will surprise bearish investors."
Ericsson (SE:ERICB 67.00, -0.25, -0.37%) shares rose 1.6% after it was upgraded to overweight from neutral at HSBC. Rival Alcatel-Lucent (FR:ALU 2.38, +0.05, +2.23%) (ALU 3.41, -0.02, -0.58%) rose 2.5%.
On the downside, news of third-quarter profit trends from Britain's biggest supermarket operator Tesco (UK:TSCO 425.30, -10.25, -2.35%) , down 2.3%, wasn't well received.
The world's third largest retailer by sales posted a 2.8% rise in U.K. comparable sales during its fiscal third quarter, which fell in a range of 2.5% and 3% growth penciled in by analysts, and kept to its fiscal-year outlook. See London Markets.
There was more bad news in the retail sector after video games seller Game Group (UK:GMG 123.20, -21.40, -14.80%) shares dropped 14.6% after reporting a 13.9% drop in comparable 18-week sales. See Game Group story.
Broker downgrades didn't help telecoms, with France Telecom (FR:FTE 17.35, -0.34, -1.89%) (FT 5.47, -0.08, -1.44%) shares down 1.6% after it was downgraded to neutral from overweight by J.P. Morgan as the broker also downgraded the European telecom sector to neutral from overweight.
"Prospects for near-term revenue recovery are less obvious than for peers, the pace of cost-cutting is uncertain and one positive - resumed dividend per share growth - is unlikely to be announced until the second half of 2010," the broker said of France Telecom.
Other telecoms notable under pressure included Deutsche Telekom (DE:DTE 10.22, -0.29, -2.71%) (DT 15.46, -0.16, -1.02%) , down 2.2%.
"This downgrade is driven not so much by sector specifics but rather by a bullish view of the market as a whole, a scenario in which telcos are expected only to perform in line," the broker said on the telecom sector.
