European stocks were subdued on Monday as investors braced for the busiest week of the earnings season and key central bank policy meetings.
Madrid’s IBEX Index fell 0.7% after an inconclusive election outcome. The Stoxx 600 slipped 0.2% by 1:37 p.m. in London, with consumer-products companies and retailers underperforming. Telecom and real estate stocks gained.
“Uncertainty is weighing on Spanish stocks today as it looks as we will not have a stable government for a time after yesterday’s election in a downside context for the economy and with corporates facing higher pressures,” said Ricardo Gil, head of asset allocation at Trea Asset Management.
A rally in European stocks has lost steam this month amid worries about central banks remaining hawkish for longer. Investors will hear from the Federal Reserve and European Central Bank this week, with both central banks expected to raise interest rates by 25 basis points. Focus will remain on any clues about further rate hikes as US inflation slows while the labor market remains resilient.
“We expect markets to remain in a holding pattern until mid-week when the Fed and then the ECB publish their rate decisions,” said Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital. “We think the central banks will hint at an end to their rate hikes, which should support markets significantly.”
Meanwhile, the second-quarter earnings season kicks into high gear this week as Stoxx 600 companies with a combined market value of $6.8 trillion are scheduled to report results, according to data compiled by Bloomberg. JPMorgan Chase & Co. strategists said they expect firms to beat the low bar for the quarter, but guidance might be tougher to raise given a loss of momentum and disappointing economic data from China.
Growth worries are also increasing, as data showed the euro-area private-sector economy contracted more than anticipated in July, with order inflows and output expectations pointing to the downturn deepening in the coming months.
Among individual movers, Ryanair Holdings Plc dropped after the carrier lowered its full-year traffic prediction and said it may need to cut ticket prices to fill seats this winter as passengers become more cost sensitive. Vodafone Group Plc rallied as it reported first-quarter service revenue growth that beat analysts’ expectations.
For more on equity markets:
- Buckle Up for Volatile Week of Central-Bank Action: Taking Stock
- M&A Watch Europe: SoftwareOne, Restaurant Group, GAM, Liontrust
- US Stock Futures Unchanged
- Ad Firm S4 Slashes Goals Over Wary Tech Clients: The London Rush
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--With assistance from Michael Msika and Daniel Curtis.
Author: Sagarika Jaisinghani and Macarena Muñoz
