Markets slow on German woes and G20 jitters

Weak German economic data and a profit warning from Daimler impacted European stock markets as investors reined in any bets on a fourth week of gains before G20 meetings that may see more trade talks between the US and Chinese presidents.

Up 4% so far in June, the pan-European Stoxx-600 index closed 0.25% lower on the day, with most of its major component markets in the red, led by a 0.5% dip in Frankfurt’s Dax.

London’s Ftse rose 0.1% thanks to gains in defensive plays including healthcare stocks. 

Traders also pointed to the weakness of the pound, which tends to boost the index’s internationally-focused firms.

The main European index has shown signs of flagging in the past week after recouping almost all of its losses from a sharp sell-off in May, helped by expectations of more monetary stimulus globally.

Corporate newsflow continues to point to a slowdown in growth, and Mercedes-Benz maker Daimler dropped 3.8% after it cut its 2019 earnings outlook and lifted provisions for issues related to its diesel vehicles by hundreds of millions of euros.

“The endless array of so-called one-time effects [on Daimler] raises questions regarding process, management information systems, and ultimately accountability of management,” Evercore ISI analyst Arndt Ellinghorst said.

Peers Volkswagen and BMW also slipped, taking the European motor sector down 1.2%.

That, allied to data showing German business morale fell to its lowest level since November 2014 in June, saw the Dax post its worst session in a week.

US President Donald Trump and his Chinese counterpart Xi Jinping are expected to discuss trade on the sidelines of the summit in Japan.

Talks to reach a broad deal broke down last month, with the US accusing China of reneging on previous commitments.

“The outcome from the Trump-Xi meeting promises significant implications for investors who are finalising their outlooks for the second half of 2019,” wrote Han Tan, market analyst at FXTM in a note.

Raymond James analyst Chris Bailey sounded a cautious note, saying “While the ... meeting is a meaningful step towards de-escalating tensions, markets could also be left disappointed.”

I think global markets generally are in a bit of a holding pattern ahead of the all-critical G20 meeting.

Investors will be watching intently on the outcome of the Trump-Xi meeting, which could very well influence the course of a protracted trade war that has produced jitters in the global economy.

Ahead of the meeting, Chinese vice commerce minister Wang Shouwen said that both countries should make compromises in trade talks, after negotiations broke down last month.

“The absence of confrontational rhetoric over the last fortnight ahead of G20 talks... may have enabled a higher ceiling for sentiment. Nerves remain though,” Cityindex analyst Ken Odeluga said.

The biggest gainer on Europe’s main index was MorphoSys, which was up by almost 6% after it presented data showing its blood cancer drug met its main goal in a study.

- Additional reporting by Amy Caren Daniel, Medha Singh, and Shashwat Awasthi

Reuters

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