European shares end lower as corporate results, trade anxiety weigh

By Twesha Dikshit, Sanchayaita Roy and Ragini Mathur

(Reuters) -European shares settled lower on Tuesday, with German equities logging their biggest one-day drop in two months as a batch of disappointing corporate reports and dimming prospects of a U.S.-European Union trade deal weighed on sentiment.

The pan-European STOXX 600 index closed 0.46% lower, with Germany's DAX logging a 1.1% drop, easing further from a recent record high.

This earnings season is especially of interest for investors as they look for clues on how trade uncertainty and the euro's recent surge are impacting European export-heavy corporates.

Latest earnings forecasts showed the outlook for European corporate health has slightly improved, although they are still expected to drop 0.3% on average, according to data compiled by LSEG. A year ago, STOXX 600 companies on average delivered a 3.0% increase in second-quarter earnings.

On Monday, Sartorius Stedim Biotech was among top losers on the STOXX 600, down 8.1% after the French lab supplies manufacturer reported its half-year results.

Switzerland's Givaudan lost 5.4% after missing half-year sales forecast due to the Swiss franc's 14% surge this year.

Among major lenders, Julius Baer's first half profit took a hit, pressured by loan loss provisions and a charge from the sale of its Brazilian wealth management arm, sending shares of the Swiss bank down 2.1%.

Keeping investors wary was also the lack of progress on prolonged negotiations between the U.S. and Europe as they brace for the EU potentially announcing a broader range of counter-measures against Washington and could escalate trade tensions.

"If we see that 30% (U.S.) tariff implemented, followed by potential countermeasures from the European Union, it would significantly hurt the growth outlook for the eurozone—a region where growth is already in a very fragile position," Fiona Cincotta, senior market analyst at City Index said.

Top on the radar for investors is a business activity survey and the European Central Bank's monetary policy verdict later in the week. Markets broadly anticipate that the central bank would leave interest rates unchanged.

"The ECB essentially has their hands tied at the moment until they gain more clarity on what the trade relationship with the U.S. will look like," Cincotta said.

Among others, Dulux paint maker Akzo Nobel declined 3.4% after lowering its core profit outlook for 2025, while Swiss chocolate maker Lindt & Spruengli fell 6.4% as steep hikes in chocolate prices struck half-year volumes.

In bright spots, Britain's Compass Group surged 5.4% after the food catering firm agreed to buy European premium food services business Vermaat Groep in a 1.5-billion-euro ($1.75 billion) deal including debt.

Banco BPM closed up 1.2% after Italy's market watchdog has suspended UniCredit's bid for the lender for another 30 days.

Attention will be on SAP, the region's largest company by market cap, with its results due later in the day.

(Reporting by Sanchayaita Roy, Twesha Dikshit, Ragini Mathur and Johann M Cherian in Bengaluru; Editing by Sherry Jacob-Phillips, Alexandra Hudson)