European stocks tumbled to their lowest since March, dragged down by some of the biggest winners of the first half of the year, as robust US jobs data rekindled worries about a hawkish-for-longer Federal Reserve.
(Bloomberg) — European stocks tumbled to their lowest since March, dragged down by some of the biggest winners of the first half of the year, as robust US jobs data rekindled worries about a hawkish-for-longer Federal Reserve.
The Stoxx 600 sank 2.3% to close at its lowest level since March 28, wiping out over $300 billion. Data showed US companies added almost half a million jobs in June, underscoring the ongoing strength of the labor market. All European sectors were in the red, with investors booking profits in this year’s outperformers such as travel and leisure and retail.
“Equity markets were vulnerable to a temporary setback after the strong rally, and the ADP data proved to be the catalyst,” said Mathieu Racheter, head of equity strategy at Bank Julius Baer. He said the next trigger would likely be the nonfarm payrolls report, due on Friday, but added that he doesn’t believe this is a start of a larger correction. “We are rather inclined to use it as an opportunity to increase exposure.”
After rallying nearly 9% in the first half of the year, European equities have started July with declines as investors also worry about the impact of high inflation on corporate earnings. Minutes of the Fed’s meeting, released Wednesday, showed officials struck a tenuous agreement to pause interest-rate increases in June, all but committing to hike again later this month.
Investors shrugged off data on Thursday showing German factory orders rebounded in May, a sign the manufacturing slump may be easing as Europe’s biggest economy faces a recession. Germany’s DAX slumped 2.6%, while France’s CAC 40 plunged 3.1% — the biggest decline since March 15 for both indexes.
Stocks are also facing increasing competition from bond markets, which now offer more lofty returns accompanied by potentially fewer risks.
Among individual movers, Hunting Plc soared by the most since 1991 after it said trading was ahead of management expectations with revenue and operating profit surpassing targets set at the start of the year. Currys Plc, on the other hand, tumbled as the UK electronics retailer canceled its final dividend and lowered pension contributions in order to save cash.
Focus now turns to the second-quarter earnings season. Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital, said that although he expects to see more profit downgrades, investor sentiment “is improving and many stocks have reached oversold levels so a short-term bounce in coming weeks is on the cards, in our view, before earnings season starts in earnest,” Klement said.
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–With assistance from Michael Msika.
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