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April 3, 2018, 12:20 p.m. EDT

European stocks slump, as tech follows U.S. lead

Worries about global trade war, tech weakness persist into second quarter

By Carla Mozee, MarketWatch

AFP/Getty Images
An Air France plane at Paris Roissy airport. The airline and other French businesses are facing strikes.

European stocks finished lower Tuesday, beginning the second quarter of 2018 dogged by the same technology-sector and trade-war worries that hurt equity markets during the first quarter.

The moves tracked a Monday selloff in U.S. stocks, when European markets were closed for the Easter break. But Wall Street’s major indexes were showing signs of recovery Tuesday after the rough start to the month’s trading.

How markets moved

European equity markets restarted trading after closures for the Good Friday and Easter Monday holidays.

The Stoxx Europe 600 index (STOXX:XX:SXXP) fell Tuesday by 0.5% to end at 367.07, led by losses for the industrial sector. The oil and gas sector latched on to a modest gain. On Thursday, pan-European index rose 0.4%, but finished first-quarter trade down by 4.7%. That was worst such performance since the first quarter of 2016, according to FactSet data.

Germany’s DAX 30 (XEX:DX:DAX) closed down 0.8% at 12,002.45. France’s CAC 40 index (PAR:FR:PX1) ended lower by 0.3% at 5,152.12.

Spain’s IBEX 35 (1058:XX:IBEX)  gave up 0.4% to close at 9,559.40, and the U.K.’s FTSE 100 index (FTSE:UK:UKX) fell 0.4% to end at 7,030.46.

The euro (XTUP:EURUSD) traded at $1.2274, down from $1.2303 late Monday in New York.

See: Brace for more ‘poor’ action by U.K. stocks, says world’s largest asset manager

Also check out: Brexit countdown: Here’s how U.K. assets have fared since the vote to leave the EU

What drove markets

European tech stocks were among the worst performers Tuesday, driving the Stoxx Europe 600 Technology Index (STOXX:XX:SX8P)  down by 0.8%, as traders returned from their holiday break to a selloff in U.S. stocks Monday. That was led by a fall for the tech sector, which has been under considerable pressure in recent weeks.

U.S. stocks showed signs of recovery during Tuesday’s session after the tech-focused Nasdaq Composite Index (AMERICAN:COMP)  was pushed into negative territory for the year on Monday. Amazon Inc. (NAS:AMZN)  was in focus after U.S. President Donald Trump took aim at the online retail giant.

Read: Trump’s attacks on Amazon break with history of presidents keeping hands off

Concerns about a trade war were still lingering as well, after China said it would slap tariffs on about 130 U.S. goods. China had warned it may issue levies in retaliation against the Trump administration’s tariffs on Chinese imports. Trade-war worries contributed to losses for equity markets world-wide last month. The Stoxx Europe 600 closed March trade down by 2.3%.

Check out: Who’s going to win? Chinese workers or robots?

The French bourse lost ground as rail workers went out on strike, the first of three months of rolling stoppages seen as a challenge to President Emmanuel Macron’s labor reforms. Strikes by garbage and energy workers, as well as by Air France staff, were also staged on Tuesday.

What strategists are saying

“The current correction feels like a continuation of March’s derating of tech stocks, as investors revaluate future earnings potential in the sector. Tech makes up about a quarter of the market cap of the S&P 500, so it is important,” said Tom Elliott, international investment strategist at deVere Group.

“But its problems shouldn’t be bringing down other sectors. Therefore stock price falls elsewhere on Monday — for example discretionary goods and energy—are perhaps best described as ‘collateral damage,’” Elliott said in a note.

“Investors have run through a selection of ‘reasons to be fearful’ over the past eight weeks, with the narrative changing as fast as the price. Inflation scare, tariff wars, Facebook hacking, tariff wars again, and now concerns over Amazon, have all been cited as the culprits,” said Chris Beachamp, chief market analyst at IG, in a note. “In truth the market was merely overexposed and primed for a drop.”

Stock movers

Among tech names in the red on Tuesday, chip makers STMicroelectronics NV (NYS:STM)  and Infineon Technologies AG (FRA:DE:IFX)  fell 3.1% and 2.1%, respectively. Payment software maker Ingenico Group (PAR:FR:ING)  shed 3.1%.

Air France-KLM (PAR:FR:AF)  dropped 4.4%. The carrier said it expects to operate 75% of its flights despite the strike on Tuesday, according to Dow Jones Newswires.

Fiat Chrysler Automobiles NV (MIL:IT:FCA)  jumped 7.3% after the company posted a 14% rise in March U.S. sales.

Sky PLC shares  rose 2.1% after 21st Century Fox Inc. (NAS:FOX)  proposed separating Sky News from the rest of Sky as it seeks to address U.K. regulators’s concerns over Fox’s bid to acquire the 61% of Sky it doesn’t already own.

Fox also said Walt Disney Co. (NYS:DIS) has expressed interest in buying Sky News, irrespective of whether Disney’s proposed buyout of 21st Century Fox assets proceeds.

Economic data

The final reading on the eurozone manufacturing purchasing managers index for March from IHS Markit was 56.6. That was unchanged from the flash estimate, which leaves the PMI at an eight-month low, on a broad-based slowdown in growth.

The U.K. manufacturing PMI from IHS Markit/CIPS came in at 55.1 in March, above the FactSet estimate of 54.7. Output growth has picked up, but an upturn in new orders has slowed, said Markit.

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