Europe open: Stocks nudge lower as UBS drops, Tesco rallies

European stocks nudged lower in early trade, with banks under pressure after results from UBS, as investors looked to the release of US economic growth figures later in the day.

At 0900 GMT, the benchmark Stoxx Europe 600 index, Germany’s DAX and France’s CAC 40 were all down 0.2%.

Accendo Markets’ Mike van Dulken said: “The US GDP figure is expected to have cooled off somewhat after Q3’s greater than 2% surge in growth to 3.5% as the US Fed look to begin a gradual course of rate hikes from 2017 to 2019. Any upside surprise will most likely be jumped upon by the Trump team as an indication of the strengthening of the US economy, however a fall in Personal Consumption levels could highlight some economic uncertainty in the world’s largest economy.”

On the corporate front, Swiss bank UBS was under the cosh after it reported a 47% drop in full-year net profit for 2016, although its fourth-quarter net profit was ahead of expectations.

Spain’s Banco de Sabadell was also weaker after saying net profit declined 51% in the fourth quarter on the back of higher provisions.

Elsewhere, telecoms company BT Group fell back after it said third-quarter revenue rose but profit declined as it deals with an accounting scandal at its Italian business and faces a “challenging” outlook in the UK. For the quarter ended 31 December 2016, revenue was up 32% to £6.12bn, compared to the previous year, while pre-tax profit fell 37% to £526m.

Budget carrier easyJet flew lower but British Airways parent International Consolidated Airlines was in the black after Goldman Sachs downgraded and upgraded the stocks to ‘neutral’ and ‘buy’, respectively. EasyJet was also hit by a downgraded to ‘underperform’ from ‘neutral’ by Davy.

On the upsode, M&A news kept things interesting in London, as the boards of food retailer Tesco and wholesaler Booker Group – which owns Londis and Budgens – announced an agreement on the terms of a recommended share and cash merger to create the UK's leading food business. Under the terms of the merger, each Booker scheme shareholder would receive 0.861 new Tesco shares and 42.6p in cash, representing a value of £3.7bn for Booker’s ordinary share capital. Shares in both companies surged.

On the macroeconomic calendar, US fourth-quarter gross domestic product data is at 1330 GMT. Investors will also be eyeing a meeting between UK Prime Minister Theresa May and US President Donald Trump.