(Bloomberg) -- European equities dropped after a weak economic data release from China and as disappointing updates from Swatch Group AG and Burberry Group Plc dragged down luxury shares.
The Stoxx Europe 600 fell 1% by the close after gaining for three straight sessions. The consumer products sector lagged alongside utilities as luxury stocks tumbled, while media as well as travel and leisure stocks outperformed.
Among individual movers, Burberry slumped after its chief executive officer departed and the luxury fashion brand suspended dividend payments. Swatch fell on the back of plunging sales and profit amid a China-led slowdown.
China’s economy grew at the worst pace in five quarters as efforts to boost consumer spending fell short and retail sales rose at the slowest pace since December 2022. The country is expected to account for about 8% of European companies’ revenues in 2024, according to Morgan Stanley.
“China’s figures confirm that the recovery, which is largely supply-driven, has lost momentum in the second quarter,” said Susana Cruz, a strategist at Panmure Liberum. “This does not bode well for consumer stocks, which are also dealing with a slowdown in US demand.”
Cruz prefers exposure to value stocks, particularly in industrial and construction, “where profits are currently recovering and we expect continued earnings revisions.”
Focus will now turn to the European Central Bank decision on Thursday. While a rate cut has effectively been ruled out as policymakers take time to assess the strength of lingering inflation pressures, traders will closely watch for any clues offered by President Christine Lagarde on prospects for the September meeting,
French politics were also in the spotlight. The country’s state auditor Cour des Comptes said that the divergence of the budget deficit compared to other European Union countries is unacceptable and the next government needs a coherent and credible plan to repair public finances.
JPMorgan Chase & Co. strategists said it’s still too early to have overweight exposure to the euro area compared to the US, but “given the meaningful lag, a good opportunity might present itself in the second half to buy eurozone.” In dollar terms, the Stoxx Europe 600 is lagging the S&P 500 this year by more than the average underperformance of nearly 8.5% since 2014.
Traders are also monitoring US markets after the assassination attempt on Donald Trump. The dollar advanced and Treasuries fell as investors ratcheted up wagers that Trump would win the US presidential election.
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--With assistance from Michael Msika and David Watkins.
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