- Europe’s benchmark Stoxx 600 index only inched a meager 0.2% higher on Monday, despite a far more robust rebound for embattled global equities in July with markets reacting to an economic slowdown and awaiting the easing inflation.
- European companies are likely to see muted earnings in the coming quarters and investors are bracing for the region to slip back into more modest and moderate levels of growth.
Although global stocks rebounded on the prospect of a more benign U.S. Federal Reserve rate hike cycle, underwhelming Chinese factory data has clouded the outlook for European companies, for which China is a major market.
Europe’s benchmark Stoxx 600 index only inched a meager 0.2% higher on Monday, despite a far more robust rebound for embattled global equities in July with markets reacting to an economic slowdown and awaiting the easing inflation.
Official data released over the weekend showed that Chinese factory activity shrunk unexpectedly in July after fresh pandemic lockdowns continued to weaken demand in China’s already embattled real estate sector.
China’s real estate sector is estimated to contribute to 29% of GDP and affects as much as 70% of economic output through ancillary demand for other related industries, including everything from building materials to marketing services.
Chinese homebuyers withholding mortgage payments and contractors refusing to work until developers pay them have had a detrimental effect on European companies, which are suppliers of everything from building materials and appliances to luxury cars to match new apartments.
Europe also faces fresh challenges from the coming winter, with a war in its backyard and Moscow’s continued threats to cut off natural gas supplies to the continent, threatening to plunge the eurozone into the cold and darkness and freezing its key export industries.
Inflation in the eurozone is already hitting record levels and there is growing discontent amongst populations at the rising cost of living, which have so far seen the Italian prime minister forced to resign.
Unlike the U.S., there’s only so much the European Central Bank can do to rein in the pace of price increases, with a recent 50-basis-point hike the highest in decades, and coming at the cost of a region where economic conditions differ vastly from the north to the south.
European companies are likely to see muted earnings in the coming quarters and investors are bracing for the region to slip back into more modest and moderate levels of growth.
