Saturday, October 16

European Stocks Slip as Traders Await US Payrolls Data


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(Bloomberg) — European equities dropped on Friday, as technology stocks game under pressure, while investors weighed the risks from surging energy prices and rising bond yields to the region’s fragile growth outlook.

The Stoxx Europe 600 Index was down 0.3% as of 9:30 am in London. Energy shares were among the biggest gainers as oil headed for a seventh weekly gain on a global energy crunch. Technology stocks including Infineon Technologies AG underperformed after AAC Technologies, one of Apple Inc.’s Asian suppliers, gave a profit warning.

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The main European equities benchmark has been on a rollercoaster ride since mid-August, when it reached a record high. After six consecutive quarters of gains — the longest winning streak since 2006 — valuations are stretched, and the outlook has been clouded by a spike in inflation, fears of a slowdown in China, rising bond yields, and persistent supply bottlenecks.

“While we remain positive overall on equities over the long term, and we’re overweight equities over bonds over the shorter tactical time horizon, these developments could generate volatility in European equity markets,” said Robert Greil, chief strategist at Merck Finck, a Quintet Private Bank.

Among individual movers Allegro.eu surged by 7.6%, after Poland’s biggest e-commerce platform acquired X-Press Couriers, a company specializing in same-day deliveries in the country’s largest cities. Netcompany Group A/S also jumped by 7%, after agreeing to buy Intrasoft International SA And Zur Rose Group AG slumped by 5.4%, after Berenberg downgraded the Swiss online pharmacy to hold from buy.

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“We expect European equity markets to recover and end the year higher as the market switches focus from macro concerns, such as high energy prices and discussion around the US debt ceiling, back to the micro and corporate profitability,” said Nick Nelson, head of global and European equity strategy at UBS Group AG. “We see it as no coincidence that the current pullback in markets happened in between reporting seasons.”

While the US Senate approved legislation that pulled the world’s biggest economy from the brink of payments default, a payrolls report later on Friday could cement expectations that the Federal Reserve will soon start tapering bond purchases, a move with global ramifications. The European Central Bank is also “recalibrating” its asset purchases to rein in surging prices, as a jump in energy costs adds the continent’s inflation woes.

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“Markets are underestimating the potential hit to growth in Europe from the recent gas price spike,” said Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International. “Europe’s industrial sector, already at risk from the economic slowdown in China, could be vulnerable to energy scarcity and surging input costs, while consumption could also take a hit as higher utility bills erode consumers’ purchasing power.”

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