European shares fall on renewed fear of trade conflict

Reuters London | Updated on August 31, 2018 Published on August 31, 2018

The pan-European STOXX 600 dropped 0.5 per cent by 0833 GMT, on track for its biggest decline in a fortnight.   -  Reuters

Whitbread surges 15%; Sage tumbles 6%

European shares fell for a second day on Friday on reports that US President Donald Trump is planning more tariffs on China, while Whitbread surged after clinching a $5.1-billion deal with Coca-Cola.

The pan-European STOXX 600 dropped 0.5 per cent by 0833 GMT, on track for its biggest decline in a fortnight. Germany's DAX, heavier in trade-sensitive industrial stocks, fell 1 per cent. Sparring over trade between Trump and the European Union weighed on car stocks, down 1 perc ent and the worst-performing sector.

‘Trump rejects EU offer’

Trump was reported to have rejected an EU offer to eliminate car tariffs, saying its trade policies are “almost as bad as China”. European Commission President Jean-Claude Juncker said the EU would respond in kind if the US imposed car tariffs.

“It's very hard to see a decisive resuscitation of risk appetite until these tensions are resolved,” said Paul O'Connor, head of the multi-asset team at Janus Henderson Investors.

“We have learned to under-react to some of the individual headlines because if you try to extrapolate from any of them you could find yourself in big trouble.”

Daimler, Volkswagen, BMW, and Continental were the biggest weights on the DAX, falling 1 to 1.3 per cent. In contrast, Whitbread soared as much as 19 per cent after the UK company agreed to sell its Costa Coffee chain to Coca-Cola for £3.9 billion ($5.1 billion) .

Traders said the deal's value exceeded the market's expectations by £500 million to £900 million and was wrapped up more quickly than expected. Most of the cash will be returned to shareholders.

Sage tumbled 9 per cent, the biggest decline among European stocks, after the British software developer surprised the market by announcing Chief Executive Stephen Kelly would stand down in May next year.

“This will leave a hole and raise further questions about reaching such targets,” said Neil Campling, co-head of the global thematic group at Mirabaud Securities. “This is one we wouldn't be bottom fishing right now.”

Air France fell 2.5 per cent, extending Thursday's losses after Kepler Cheuvreux cut the stock to “hold” from “buy”, citing concerns about capacity growth, fuel costs and strikes.

German carrier Lufthansa also fell 4.2 per cent, after Citi cut the stock to “sell”, saying perceptions of consolidation in Germany were “overly enthusiastic” and preferring low-cost airlines easyJet and Ryanair.

Shares in Edenred fell 3 per cent after Berenberg cut the stock to “sell” from “hold”, saying its business model remains structurally challenged. While trade disputes have caused uncertainty and volatility, investors drew comfort from strong earnings.

“Concerns around trade are not significantly affecting macro and market fundamentals at this stage. There's still a fairly strong global recovery, earnings forecasts remain resilient across the board,” said Janus Henderson's O'Connor.

“It limits the upside but isn't something that is changing our perception of broader market fundamentals.”

Analysts have, however, adjusted their earnings expectations for autos stocks since the trade war broke out.

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Published on August 31, 2018
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