FRANKFURT: European shares settled lower for a fourth straight session on Monday, as the earnings-fuelled rally cooled and the continuing stand-off between US and Iran dampened risk appetite.
The pan-European STOXX 600 closed 0.22 percent lower at 656.41 points.
With a strong European earnings season largely in the rear-view mirror and second-quarter profit expectations rising steadily, investors have shifted their focus back to macroeconomic and geopolitical developments for the next market catalyst.
Friday’s soft US retail sales data reinforced expectations that the Federal Reserve will keep interest rates on hold next month, while money markets are pricing in roughly an 84 percent chance of a 25-basis-point European Central Bank rate hike in September, according to LSEG data.
“With US data softening while European data remaining relatively strong … the focus is increasingly shifting to central bank decisions in September,” said Andrea Cicione, head of research at TS Lombard.
Supporting the longer term outlook, Goldman Sachs raised its 12-month target for the STOXX 600, forecasting the pan-European benchmark to reach 695 points from 660 previously, implying about 5.5 percent upside from current levels, citing resilient economic growth and strong corporate earnings.
“What you’re starting to see is a strong acceleration in earnings growth even beyond energy, which is no longer just a result of cost discipline, protecting margins, but increasingly the result of revenues picking up and operating leverage,” said Maximilian Kunkel, chief investment officer, global family and institutional wealth at UBS.
Meanwhile, oil prices were firm with no signs of progress in talks between the United States and Iran. A senior Iranian official said that Tehran has decided to go on offensive due to the deadlock in efforts to end to the war.
Among STOXX 600 sectors, personal and household goods slid 2.3 percent, while food and beverages also dropped 2.3 percent, with Diageo down 3.4 percent.
The spirits maker has agreed to reformulate some of its drinks in India, two government sources told Reuters. The luxury stocks slipped 2 percent as Gucci parent Kering and LVMH Moët Hennessy Louis Vuitton lost 4.3 percent and 2.7 percent respectively.
Comments