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Banks, energy stocks lead European equity markets down

written by Bella Palmer
equity

The pan-European STOXX 600 index tumbled 0.5%, reversing gains from earlier in the day, with German stocks slipping almost 1%

European equity markets largely lost ground on Tuesday, weighed by bank and energy stocks as investors tread cautiously ahead of key U.S. inflation data and an anticipated ECB rate cut later in the week.

Shares of automaker BMW plunged 11%, notching their worst day in more than four years after the company cut its 2024 profit margin outlook due to sluggish demand in its key Chinese market and problems related to a braking system supplied by Continental.

Continental shares declined 10.5%.

With China only getting tougher and BMW overexposed to China, and with H2 recovery expectations looking a bit optimistic, it remains tough to see the positive catalyst for BMW, analysts at Citi wrote in a note.

Bank stocks also declined sharply, tracking a selloff in U.S. lenders with analysts citing downbeat comments from Goldman Sachs CEO David Solomon.

Deustche Bank slipped 4.91%, and a European index tracking bank stocks tumbled 1.6%.

The oil and gas sector also skidded 1.6% as Brent crude prices slid below $70 per barrel for the first time since December 2021.

The pan-European STOXX 600 index tumbled 0.5%, reversing gains from earlier in the day, with the automobile sector 3.8% lower and German stocks slipping almost 1%.

Markets were uneasy ahead of Wednesday's U.S. inflation report, which could provide clarity on the size of the Fed's rate cut when it meets next week.

The path for interest rates and economic growth in the U.S. economy has largely set the tone for global markets over the last months.

In Europe, the European Central Bank meets on Thursday and markets have fully priced in a 25 bp rate cut, though the policy path for the rest of this year remains more uncertain.

The question for markets is what happens next, according to analysts at ING.

The ECB downplaying the chance of an October cut and confining itself to quarterly steps on rates – at least for now – should act as a brake on the potential pace of easing, they said.

The rate-sensitive real estate sector was one of the few gainers on the STOXX 600 index, gaining 1.7%.

On the economic front, data showed German inflation slowed to 2% in August.

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