European stocks finished lower Monday, with mining shares pulling back as Chinese economic data highlighted concerns surrounding a global trade war. Bank stocks advanced however, as Deutsche Bank AG offered a brighter outlook for its upcoming earnings report.
How are markets performing?
Germany’s DAX 30 index DAX, >+0.16% tacked on 0.2% to 12,561.02, supported by Deutsche Bank shares, which rose on Monday.
The U.K.’s FTSE 100 index UKX, >-0.80% ended 0.8% lower to close at 7,600.45, weighed in part by mining and oil stocks.
France’s CAC 40 index PX1, >-0.36% closed 0.4% lower at 5,409.43.
What is driving the market?
European stocks had a sluggish start to the week as trading got under way, with mining stocks being dragged down after data showed China’s gross domestic product slowed slightly in the second quarter. The Stoxx Europe 600 Basic Resources Index SXPP, >-1.01% fell 1% on Monday.
Second quarter growth in China — the largest consumer of industrial metal copper — came in at 6.7%, the slowest rate since the third quarter of 2016, as Beijing continued efforts to stoke deleveraging at financial institutions.
While the growth numbers were in line with expectations, they raised questions about the health of the Chinese economy, the world’s second largest, as its trade spat with the U.S., including retaliatory tariffs, continues. The U.S. government last week said it’s looking to expand its import tariffs against Chinese goods to $200 billion in products.
“Equities are not yet discounting a trade-war scenario and we see a 20% plus decline driven by a combination of lower earnings and multiple contraction. Markets have started to discount the risk following recent announcements and we estimate that Asia is already discounting our escalation scenario,” said Tao Wang, head of Asian economic research at UBS, in a research note published Monday.
“We see U.S. and European equity markets declining 10% and 7%, respectively, in our Escalation Scenario, suggesting that this is not yet fully priced in,” Wang wrote.
Europe, China and the U.S. have a duty “not to start trade wars,” said European Council President Donald Tusk on Monday at a summit between European Union and Chinese officials in Beijing. President Donald Trump called the EU “a foe” of the U.S. in an interview with CBS Evening News that aired Sunday.
European bank stocks overall received a boost Monday as Deutsche Bank AG DB, >+8.01% DBK, >+7.20% shares rallied 7.3% on the German lender’s projection that profit and revenue will surpass consensus expectations in the second quarter.
In the mining group, Glencore PLC GLEN, >-1.25% GLCNF, >-1.35% closed down 1.3%, Boliden BOL, >-1.72% gave up 1.7%, and BHP Billiton PLC BLT, >-2.48% BHP, >-1.30% BHP, >-1.48% ended 2.5% lower. Steel maker ArcelorMittal SA MT, >-1.24% shed 1.3%.
Indivior PLC INDV, >+16.93% finished 17% higher after the drug maker late Friday said it won a preliminary injunction against Dr. Reddy’s Laboratories Ltd. 500124, >-10.13% RDY, >-10.41% over a product that treats opioid dependence.
Micro Focus International PLC MCRO, >-2.89% lost 2.9% after Credit Suisse reportedly cut its rating on the software maker.
Brexit bill under debate
A new round of voting is expected to start Monday in the U.K. House of Commons on amendments to the bill that will take Britain out of the European Union. They will be the first votes on amendments related to trade after U.K. Prime Minister Theresa May won support for a soft-Brexit strategy from her cabinet when they met at Chequers earlier this month. That approach includes negotiating for frictionless trade in goods between the U.K. and the EU.
But May’s vision moving forward prompted resignations by chief Brexit negotiator David Davis and Foreign Secretary Boris Johnson, among others, and Monday’s votes face the prospect of rebellion by members of May’s Conservative Party.
“We need to keep our eyes on the prize. If we don’t, we risk ending up with no Brexit at all,” said May, in a Facebook post on Sunday, warning critics of her strategy.
Former Foreign Secretary Johnson wrote in an article published Monday in the Telegraph newspaper that Britain should “militate ceaselessly for free trade deals” and said the U.K. needs to believe it can stand strong in a post-Brexit environment.