April 25, 2024

European Shares Decline Due To Energy Stocks, Losing Earlier Gains

On Monday, European shares fell because of a slump in energy stocks due to increasing worries of a slowdown in the global economy.

This was after data showed that manufacturing activity in the euro zone had declined and Chinese economic data turned out to be disappointing.

Worrying data

There was a 0.1% decline in the continent-wide STOXX 600 index, after a day of choppy trading, as it reversed some of the slim gains it had recorded earlier.

July saw factories in Europe, the United States as well as Asia, struggle for momentum, as surveys showed that production slowed down because of Chinese COVID-19 lockdowns and flagging global demand.

This ended up fueling fears of a recession. There was a 1.5% decline in energy stocks, as they ended a winning streak of six days in a row.

Demand concerns were renewed after weak factory demand and this resulted in a drop in the prices of crude.

Meanwhile, the statistics office in the European Union disclosed that unemployment in the euro zone was held steady in June at 6.6% of the total workforce, which was in accordance with market expectations.

Market analysts said that even if the economy goes into recession, the strength of the labor market was unlikely to decline, which would keep upward pressure on inflation and growth.

They added that pay growth was expected to rise, as workers are facing high inflation and this would increase the demand for bigger increases in wages.

This would push up the cost pressure on companies and this in turn will result in strong consumer inflation in the next year.

European stocks

On Friday, the best monthly performance was recorded in European stocks, which had not been seen since November 2020.

This was thanks to corporate Europe, which reported strong earnings, even though broader investor sentiment continued to be fragile.

Market analysts said that the European Union is facing a very bleak picture, as numbers show that sales have reduced, as have rates of exports and new orders, and stocks have seen a large rise.

It is expected that manufacturers will cut their output moving forward.

German issues

The powerhouse of the economy in Europe, German data showed that the first half of the year had seen retailers record drop in year-on-year sales in almost three decades.

This was because of the pandemic, the Russia and Ukraine conflict, and inflation, all of which had had an impact.

There was a 0.4% drop in Heineken NV, as the second largest brewer in the world saw costs spike, which pushed it to shelve its margin target for the coming year.

A 12.7% increase was also recorded in Pearson, after it reiterated its full-year profit outlook, allowing it to reach the top of the benchmark index.

Banking stocks also gave a boost to shares, including HSBC which saw gains of 6.1%, thanks to upbeat profits and higher dividends.

The largest bank in Europe also decided against a shareholder proposal of splitting its business, which it said would be costly.

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