European Stocks Hit 2-Month Lows on Mining, Tech Losses

European Stocks

European shares hit two-month lows on Monday, led by miners as investors fretted over a sharp economic slowdown in China due to prolonged COVID-19 curbs, while surging bond yields kept technology stocks under pressure.

The pan-European STOXX 600 index dropped 1.2 percent to touch its lowest since March 10.

Miners fell 2.8 percent as Chinese iron ore futures plunged more than 6 percent on concerns about demand in the world’s second-largest economy after data showed April export growth slowed to single digits.

Tech stocks dropped 2.1 percent to December 2020 lows as U.S. and European government bond yields surged to multi-year highs on bets for faster interest rate hikes aimed at taming a surge in inflation.

The European Central Bank should hike interest rates as many as three times this year to combat inflation, hawkish policymaker Robert Holzmann said over the weekend.

The benchmark STOXX 600 has shed over 5 percent so far in May, as China’s COVID curbs, aggressive monetary policy tightening and the Ukraine war stoke concerns about a global economic slowdown. The index is down about 14 percent since hitting an all-time high in January.

“Fears of a GDP slowdown, hawkish central banks plus increasing real yields and political uncertainty will linger short term, further pressuring PEs and triggering negative earnings revisions,” Michele Morganti, senior equity strategist at Generali Investments said in a note.

Adding to the gloom, investor morale in the euro zone fell in May to its lowest level since June 2020, as the impact of the war in Ukraine on Europe’s largest economy becomes increasingly clear.

“The positive effects of the good Q1 reporting season and activity reopenings could be short lived,” Morganti added.

Of the nearly 60 percent of European companies that have reported results so far, 72 percent have topped analysts’ profit estimates, as per Refintiv IBES data. In a typical quarter, 52 percent beat estimates.

Chipmaker Infineon fell 2.4 percent despite lifting its full-year outlook as it benefits from a global shortage of semiconductors.

Dutch postal firm PostNL slumped 12.1percent after it cut its full-year forecast, warning that economic uncertainty, growing inflation and pressure on e-commerce volumes make 2022 “more challenging than previously anticipated.”

BBVA gained 1.6 percent after Deutsche Bank upgraded the stock to “buy”, saying the Spanish lenders’s key strengths remain untouched even under increasing economic uncertainty.

Defensive sectors such as utilities and telecoms fell the least, while oil & gas stocks were flat with brokerage Cowen lifting price target on oil major Shell.