(Bloomberg) -- European stocks retreated following a slate of disappointing earnings and weak US data that raised worries about the health of the broader economy. France’s CAC 40 benchmark entered a technical correction.
The Stoxx Europe 600 Index tumbled 1.2% by the close, its biggest one-day slide in seven weeks, as data showed US manufacturing activity shrank by the most in eight months in July. The CAC 40 index sank 2.1% Thursday, bringing total declines since a May record high to over 10%.
“The hope that the US is holding up well is fading, and that means the last stalwarts with decent performance are giving back some profits,” said Joachim Klement, a strategist at Panmure Liberum.
The UK’s domestically focused FTSE 250 Index fell 0.7%, reversing earlier gains of as much as 0.9% that were fueled by the first interest-rate cut from the Bank of England since early 2020. The BOE also signaled further cautious reductions ahead, offering some relief to households after a year of the UK’s highest borrowing costs for a generation.
European autos underperformed as Volkswagen AG’s second-quarter margins declined, with restructuring charges weighing on its volume brands as well as lower deliveries in China. BMW AG also dropped after its earnings fell on waning sales in its key market China.
Bank stocks fell, with SocGen tumbling as its domestic retail unit disappointed. Shares of Credit Agricole SA and Barclays Plc also came under pressure despite upbeat results. Real estate and retail stocks outperformed.
After a tepid July performance, the Stoxx 600 is heading into what has typically been the weakest season of the year. In the past 25 years, the index has dropped about 2.3% on average cumulatively in August and September, according to data compiled by Bloomberg.
Sentiment had been earlier boosted by signals from Federal Reserve Chair Jerome Powell that policymakers were on course to cut interest rates in September unless inflation progress stalls, citing risks of further labor-market weakening.
Data showed initial applications for US unemployment benefits jumped to the highest level in almost a year. Swaps traders fully priced in 75 basis points worth of easing from the Fed this year — reflecting a quarter-point reduction at each of the remaining policy meetings. Focus will turn to a key jobs report on Friday.
Richard Flax, chief investment officer at European digital wealth manager Moneyfarm, said an “okay” earnings season was also reason for caution. He said he wasn’t making any changes in equity positioning for now.
For more on equity markets:
- Old Economy Shelters Europe From US Market Swings: Taking Stock
- M&A Watch Europe: Forgital in Focus of Buyout Firms; Lusa
- UK Financial Firms Spur European IPO Rebound Hopes: ECM Watch
- US Stock Futures Rise as Tech Extends Rally After Fed Meeting
- GSK’s Summer Booster: The London Rush
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--With assistance from Rheaa Rao.
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