European Stocks Slump on New U.S.-China Tensions, Manufacturing

(Bloomberg) -- European equities dropped the most in nearly two weeks on Monday, as investors assessed U.S.-China tensions, the hit to manufacturing data and risks from the lifting of lockdowns in major economies.

The Stoxx Europe 600 Index closed 2.7% lower led by oil & gas, banking and automaker shares, the biggest decline since April 21. Thyssenkrupp AG fell 14% after private equity firms Cinven and Advent were said to be seeking investors to help pay for the planned acquisition of its elevator business. Ryanair Holdings Plc tumbled 11% after announcing on Friday it’ll cut 3,000 jobs.

Most European stock markets today reopened after Friday’s public holiday, catching up with declines driven by concerns about the coronavirus’s impact on earnings and a flare-up in U.S.-China tensions. Secretary of State Michael Pompeo said “enormous evidence” shows the virus outbreak began in a laboratory in Wuhan, China, but didn’t provide any proof for his claims.

“We are seeing a healthy setback after the strong April rally,” said Ulrich Urbahn, head of multi-asset strategy and research at Joh Berenberg Gossler & Co. “For the next weeks a volatile sideways market seems likely to me as the downside should be limited thanks to cautious investor positioning and the central bank support. However, the upside seems also limited given deteriorating macro data and high valuation levels.”

European manufacturing data also weighed as IHS Markit said the recovery from shutdowns will be “frustratingly slow,” after production suffered an unprecedented slump in April. There were record-low readings for France and Italy, while those in Spain and Germany were at the weakest in about 11 years.

European Stocks Slump on New U.S.-China Tensions, Manufacturing

Investors are considering efforts by countries such as Germany, which is starting to ease lockdown restrictions, against fears of a second wave of infections.

“We expect stocks to remain volatile as markets struggle to find a balance between announcements on the lifting of lockdowns, data on potential treatments and vaccines, economic releases, news on the course of the pandemic, and changing political dynamics,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

JPMorgan Chase & Co. strategists led by Mislav Matejka cut euro-zone stocks to neutral from overweight, saying that while the region should have benefited from the easing of trade uncertainty, and while it’s cheap on most valuation metrics, its sector tilts are a “drag and the policy response is weaker.”

The Euro Stoxx 50 Index is up about 17% from March lows, compared with a 26% rally for the S&P 500. Euro-zone and European stocks are lagging behind the U.S. for several reasons: Europe has a large presence of cyclical sectors, such as banks and energy, which have underperformed during this crisis. On top of that, the region has led the recent wave of dividend cuts by major companies. Investors have also been disappointed by the scale of fiscal and monetary support measures as Europe faces its deepest recession in living memory.

©2020 Bloomberg L.P.

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