* FTSEurofirst 300 down 0.1 pct
* Budget airlines fall after Ryanair numbers
* Banks lead financial gains on recovery optimism
* Investment banks turn cautious on equities short-term
By David Brett
LONDON, Jan 28 Weak airlines offset gains for
the financial sector on Europe's stock exchanges on Monday,
while several indicators suggested the new-year bull-run for
European shares could have peaked for now.
By 1135 GMT, Europe's leading shares shed 1.08
points, or 0.1 percent, to 1,173.73. That compared to a near
two-year high of 1,174.81 reached on Friday.
The travel and leisure sector was the main drag on
the FTSEurofirst 300, down 0.9 percent and led lower by budget
airlines Ryanair and easyJet, which retreated
after a recent surge.
Ryanair shed 1.5 percent after it reported strong growth in
European fares in the fourth quarter but warned of marginal
passenger growth in 2013, capped by a slow-down in plane
EasyJet fell 1.8 percent on news of the departure of
chairman Mike Rake, who has endured a strained relationship with
majority shareholder Stelios Haji-Ioannou.
Banks rallied further after Friday's announcement
that lenders made hefty early repayments of emergency funding
from the European Central Bank, a sign at least parts of the
financial system are returning to health.
"Financials (including banks, asset managers and insurers)
are the play for this year and I still think they have got some
way to go," Charles Morris, fund manager at HSBC, said.
The European banking sector remains cheap on a depreciated
2013 price-to-book-value of 0.85 times, while Deutsche Bank
calculated an implied cost of equity of 12 percent was at the
bottom of the post-2007 range. If cost of equity is low, that
normally suggests that a sector has room to improve.
HSBC's Morris said: "Banks are still repairing their balance
sheets in Europe but over time investors will get significant
capital returns and then the income will follow."
Yield remains a strong driver for equities, relative to 2
percent returns on "safer" bonds and cash rates close to zero.
Offshore rig contractor Transocean 4.1 percent
higher after activist shareholder Carl Icahn said late on Friday
he wanted to see it declare a dividend of at least $4 per share.
As a number of indicators suggested equities may have peaked
after hitting multi-year highs, Citigroup, Nomura and JP Morgan
all turned cautious on equities in the near-term but stopped
short of calling an end to the rally.
JP Morgan pointed to Citigroup's U.S. Economic Surprise
Indicator turning negative as well as the move by
AAII Investor Sentiment Survey into the top 5 percent of
observed readings. Equivalent moves in the past have normally
been followed by lacklustre equity returns, it said.
Where earnings remain a concern, companies continue to get
punished by investors. Capita was among the top fallers,
down 2.1 percent after Canaccord cut its rating to "sell" on
valuation grounds warning the medium-term outlook for EPS growth
is much more muted for the British outsourcing firm.
It has been a robust if unspectacular start to the earnings
season in Europe, with 57 percent of the companies that have
reported earnings beating or meeting expectations.
New York has done better, however. Of the 141 companies in
the S&P 500 that have reported earnings to date for the
fourth-quarter 2012, 67 percent have reported earnings above
analyst expectations. This is higher than the long-term average
of 62 percent.
U.S. stocks closed at their highest level in five
years on Friday and were enjoying their best consecutive run in
eight years, fuelled by improving economic and corporate data.
"A lot of people might have underappreciated the bear market
recovery rally, which is much broader than investors realise. In
the cash markets in Europe there might be another 20 percent to
go until it becomes fair value with the United States," HSBC's