Europe Stocks Drop Most in Month on U.S. Recovery Woes, Earnings

(Bloomberg) -- European stocks fell the most in more than a month, extending losses after a record contraction in the U.S. economy added to gloomy corporate updates on the busiest day of the earnings season.

The Stoxx Europe 600 Index dropped 2.2% by the close in London, with all industry groups down aside from travel and leisure. Banks slid 4.3% for the worst performance as Lloyds Banking Group Plc tumbled after its profit was wiped out by a fresh charge for bad loans. Autos were also among the top decliners as Volkswagen AG cut its dividend, while Renault SA posted a record first-half loss.

Equities took a leg lower in afternoon trading after data showed the U.S. economy shrank 32.9% in the second quarter, while President Donald Trump floated the notion of delaying the country’s election due in November. Germany’s DAX Index slid 3.5%, dragged lower by autos and following a report that Germany’s GDP fell the most in at least half a century.

The Stoxx 600 has lost momentum since rallying to an almost five-month high on July 21, and on Thursday fell below its 50-day moving average.

“A double-digit percentage decline in the German economy and abysmal results from Lloyds have put the cat among the pigeons this morning,” said Chris Beauchamp, chief market analyst at IG. Overall, “this is a very gloomy set of updates that should give investors pause before putting more money to work in equities, at least for the time being.”

About 60 of the Stoxx 600’s companies are reporting Thursday, representing a combined market value of more than $2 trillion. The rebound in equities since March has widened a gap with the slide in the earnings outlook.

Among other notable movers, Spain’s Banco Bilbao Vizcaya Argentaria SA fell 8.1% after a slowdown at its Mexico business overshadowed a rebound at other units. Anheuser-Busch InBev NV climbed as much as 11% after sales and earnings beat estimates.

Investors are also bracing for earnings from some of the biggest U.S. tech companies, with Apple Inc., Amazon.com Inc., Alphabet Inc. and Facebook Inc. due to report their numbers after the market close. Traders largely shrugged off the Federal Reserve’s vow to use all its tools to support the economic recovery as the central bank left interest rates near zero late yesterday.

“There is no doubt that the Federal Reserve will do what it can to prop up the economy and markets –- Jerome Powell re-emphasized their continuing commitment,” said Seema Shah, chief strategist at Principal Global Investors. “But with rates already so low, monetary policy is becoming less effective at stimulating the economy.”

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