Europe midday: Stocks drop as China concerns hit sentiment

8th Oct 2024 10:59

(Sharecast News) - European stock markets fell on Tuesday, with drinks, luxury and mining stocks weighing heavily on indices across the continent as earlier optimism surrounding stimulus measures in China began to fade.

By 1210 CEST, the Stoxx 600 was down 0.7% at 515.82, with heavy falls in London (-1.1%) and Paris (-0.8%) met with mild losses in Frankfurt, Milan and Madrid (all around 0.3% lower).

Sentiment was being dampened by a huge drop in Chinese stock overnight as traders returned to their desks following the Golden Week break. The Hang Seng index in Hong Kong tumbled 9.4%, while the Asia Dow fell 3.1%, as market participants expressed their disappointment with the lack of new stimulus measures from Beijing. Nevertheless, Shanghai stocks were up 4.6%.

Russ Mould, investment director at AJ Bell, said "cracks were starting to appear in the China euphoria" which had propelled stocks higher in recent weeks, and that markets wanted more visibility on fiscal stimulus from the government.

"We're lacking precise information from officials on how Beijing expects the Chinese economy to regain previous strength beyond headline initiatives announced last month including a lower cost of borrowing on existing mortgages and banks having the capacity to lend more money," he said.

Oil prices were pulling back on Tuesday after surging to a six-week high the previous session. Brent was down more than 2% at $79.26 a barrel, after topping the $80 mark on Monday on the back of supply concerns amid another escalation of conflict in the Middle East.

In economic news, German industrial production increased more than expected in August, driven by a "significant" jump in the auto industry, according to official data published on Tuesday. Production was up 2.9% month on month, the federal statistics office Destatis said. Analysts had expected a 0.8% rise.

Vistry plummets in London

Vistry was the heaviest faller of the day, dropping nearly 30% as the housebuilder warned on profits after underestimating build costs on nine schemes in its Southern Division. The company now expects FY24 adjusted pre-tax profit to be £80m lower, while profit for FY25 will take a hit of around £30m and £5m for FY26.

Shares of European drinks makers Remy Cointreau, Pernod Ricard and Diageo slumped after China said it would impose provisional anti-dumping tariffs on brandy imported from the European Union this week. According to a notice from the Ministry of Commerce, Chinese customs officials will collect security deposits from companies that sell brandy that originates from the EU. The deposit amount will be between 30.6% to 39% of the total value.

China was also weighing on stocks in the luxury and mining sectors over fears over reduced demand. Burberry, Kering, Swatch Group, Antogasta and Anglo American were all trading with heavy losses.

AJ Bell's Mould said that the weak performance of mining stocks "would imply that China's latest economic stimulus measures might not live up to the initial hype. Or it might simply be canny investors locking in some of the recent gains on the stocks just in case we see a broader pullback."

One bright spark was UK-listed cigarette and vape maker Imperial, rising 4% after beefing up its shareholder returns programme by £400m as it confirmed full-year results would be in line with expectations.