European shares hold steady, Spanish stocks lag on election jitters

European shares were marginally higher on Monday as gains in energy firms and telecom stocks were countered by worsening fears of recession in the euro zone and losses in Spanish stocks after the country’s general election yielded no clear winner.

Spain’s benchmark IBEX index was down 0.3%, having hit a near one-week low earlier in the session, following results from Sunday’s vote which denied both the left and the right bloc an easy path to form a government, pointing to a political gridlock and raising nervousness among investors.

Shares of Madrid-listed utilities, which had priced in a victory for right-wing parties, fell, with Endesa and Iberdrola down 2.7% and 0.5%, respectively.

A gauge of Spanish lenders that includes Banco de Sabadell, Banco Santander and Caixabank fell 0.3%.

However, the pan-European STOXX 600 edged up 0.1%, hovering near its five-week highs.

A survey showed the downturn in euro zone business activity deepened much more than expected in July as demand in the bloc’s dominant services industry declined and factory output fell at the fastest pace since COVID-19 first took hold.

“There has been some mild underperformance from the Spanish equities today but this is couched in the context of weakness across euro zone equities generally in the wake of the release of today’s purchasing manager surveys which painted a great downbeat perception across the base for the regional economy,” said Jeremy Batstone-Carr, European strategist at Raymond James.

Markets have priced in a quarter percentage point increase in interest rates to 3.75% by the ECB later this week, but what it will do after July is less certain.

Irish stocks led losses on the index, down 0.9%, dragged by a 6.1% fall in Ryanair after the airline forecast weak traffic for the year 2024.

Capping declines, energy shares added 1.5% as crude prices rose on tightening supply and hopes for Chinese stimulus measures.

Boosting the telecom sector, Vodafone Group rallied 4.1% after it reported an acceleration in first-quarter top-line growth.

Among other stocks, Bavarian Nordic tumbled 26.0% to an over one-year low after the Denmark-based company said it was ending its respiratory syncytial virus (RSV) vaccine programme.

Dutch health technology company Philips slid 5.8% as it posted a fourth straight drop in order intake on Monday.

Swiss private bank Julius Baer climbed 8.4% after it reported an 18% increase in net profit for the first half of 2023.