Equity markets lose shine as oils drag and Egyptian tension weighs on sentiment

After two solid days of gains, European equity markets traded lower as an update from Royal Dutch Shell missed expectations and the increasingly fractious situation in Egypt weighed heavily on investor sentiment.

Shares in Royal Dutch Shell fell by over 3% as a rise in fourth quarter profit was offset by higher taxes and weaker trading, the oil giant’s fall contributed to over half of the 30-point losses on the index. Investors have seen the shares rally almost 20% since the beginning of December, and so disappointing numbers were a welcome opportunity to take some profits.

Away from oil stocks, equities traded almost at parity with heavyweight banks Barclays and HSBA posting gains while miners were broadly positive with Xstrata featuring on the leader board and Rio Tinto edging better. The mixed performance highlighted investors’ caution as geopolitical tensions remained at the fore. The markets have rallied hard in the last two days on the hope that the Egyptian crisis may have been coming to a calm and satisfactory end, but recent clashes have unnerved investors that the situation could worsen as the current administration may be seeking to exert authority over protesters. Brent Crude headed towards $103 a barrel as tensions escalated.

On a more positive note, investors were heartened by solid UK sector PMI numbers that demonstrate the sector is back in good health; ally this with solid construction numbers yesterday and investors are hoping that the disappointing GDP number last quarter was a temporary blip.

Investor attention will now turn to US jobless numbers this afternoon that should give some insight as to what to expect from the all-important non-farm numbers tomorrow. As ever, traders will be looking to see the US recovery remaining on track but more importantly hoping to see the recovery impacting positively on the labour market.