European stocks fell on Friday to cap their third straight week of declines as concerns over higher interest rates and a slowing Chinese economy further sapped this year’s rally.
(Bloomberg) — European stocks fell on Friday to cap their third straight week of declines as concerns over higher interest rates and a slowing Chinese economy further sapped this year’s rally.
The Stoxx 600 Index was down 0.6% by the close, hitting its lowest level since July 10. Miners, retailers and real estate stocks fell, while utilities outperformed. The UK’s FTSE 100 also dropped 0.7%, closing less than 1% away from correction territory. Volatility ticked higher, with the Cboe Volatility Index hitting its highest level since May.
Among notable movers in individual stocks, Dino Polska SA dropped after the Polish supermarket operator’s earnings missed expectations. Swiss semiconductor device maker u-blox Holding AG posted a record plunge after cutting its full-year guidance. Adyen NV, whose shares slumped 39% Thursday after the payments company posted its slowest revenue growth since its initial public offering, resumed losses on Friday as analysts cut their ratings or price targets on the stock.
Investor concerns over interest rates remaining higher for longer, rising bond yields and a crisis in China’s property sector have seen gains for European stocks cool in August. The Stoxx 600 Index is down 4.9% so far this month, with the biggest laggards including basic resources, autos and industrials — sectors that are both particularly sensitive to the economic cycle and have significant exposure to China.
The weakness in equity markets is entrenching strategists in their view that gains are done for the year. They see the Stoxx Europe 600 at 453 points by year-end, according to the average of 15 forecasts in a Bloomberg survey, just a touch below last Wednesday’s close.
The pessimism was echoed by UBS Group AG strategists, who said in a note that they expect the Stoxx 600 to fall 10% by year-end, a move which would require some large caps to fall further.
Recent minutes from the Federal Reserve’s latest July policy meeting showed that the risk of higher inflation could warrant further tightening. With earnings season coming to an end, investors are weighing whether the mounting risks will be too much to revive the momentum in equities.
“The earnings season has been luckluster showing that European equities are facing profitability pressures as recession concerns mount and activity slows,” said Aneeka Gupta, director macroeconomic research at Wisdomtree.
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–With assistance from Michael Msika and Sagarika Jaisinghani.
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