European shares slide to three-week low after bumper 2023

By Ankika Biswas and Shashwat Chauhan

(Reuters) -Europe’s benchmark stock index dropped to a three-week low on Wednesday, testing last year’s market rally, with investors keeping an eye out for major factors during the day for cues on global monetary policy.

The pan-European STOXX 600 was down 0.8% by 1310 GMT, losing as much as 1% intraday, after kicking off the New Year on a lacklustre note on Tuesday.

Flagship indexes in Germany, Italy, and France slid over 1% to near one-month lows each.

The financial services index declined 2.2%, on track for its biggest one-day slide since July, with Swiss lender UBS Group AG losing 3.1%.

Among other major sectors, basic resources and construction and materials declined over 2%, hitting near three-week lows each.

Luxury giants LVMH, Kering, Hermes and Richemont lost between 2% and 3.3%. The broader sector shed 2.3%, hitting its lowest level since late November.

The focus is on a key U.S. jobs report and minutes from the Federal Reserve’s December policy meeting, due later in the day.

Growing expectations that the European Central Bank will deliver interest rate cuts in 2024 had propelled a 12.7% jump in the benchmark STOXX 600 in 2023.

“If something happens that’s not in that script, then there may be some risk of disappointment…,” said Russ Mould, investment director at AJ Bell.

“Markets are just pausing for breath now, waiting for some degree of confirmation, plus there’s no greater amount of news flow to go on at the moment.”

Any shocks in the timing of rate cuts and further worsening of the European economy are some of the key triggers that could test the sustainability of last year’s gains.

Multiple analysts expect the European Central Bank to cut rates the soonest in light of economic weakness, followed by the Bank of England, and then the Fed.

Among individual stocks, Ryanair lost 4.6% after multiple online travel agents stopped selling its flights in early December, and on a traffic numbers update.

Computer chip equipment maker ASML fell 2.7%, down for the second day, following the Dutch government’s partial revoking of an export licence for some China shipments.

Maersk rose 4% after Goldman Sachs upgraded the shipping company’s stock rating to “neutral” from “sell”, citing a boost from rising freight rates amid disruptions at the Red Sea.

Food and beverages rose 0.6%, led by a 2.8% advance in Swiss packaged-food giant Nestle.

Healthcare also enjoyed gains, with Swiss drugmakers Novartis and Roche jumping 3.7% and 2.8%, respectively.

(Reporting by Ankika Biswas and Shashwat Chauhan in Bengaluru; Editing by Sherry Jacob-Phillips, Varun H K and Janane Venkatraman)