By Barbara Kollmeyer
Stocks slid in Europe on Wednesday, a move that kept pace with markets elsewhere as investors assessed how the delta variant of coronavirus will harm global economies.
The Stoxx 600 index /zigman2/quotes/210599654/delayed XX:SXXP -0.08% fell 0.8% to 469.12, and was poised for its worst one-day percentage loss since mid July. The German DAX /zigman2/quotes/210597999/delayed DX:DAX -0.32% dropped 0.9%, the French CAC 40 /zigman2/quotes/210597958/delayed FR:PX1 -0.29% fell 0.5% and the FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX -0.45% lost 0.7%. The euro slipped 0.2% to $1.1822.
Investors are struggling with concerns over the delta variant’s spread and its effect on the global economy after weaker-than-expected U.S. jobs data last week. U.S. stocks were set for a slightly lower open, while Asian stocks had a mixed session.
European stocks have “already transitioned to a mid-cycle regime and are not priced for perfection any more, despite the prevailing liquidity factor pushing them higher,” a team of Barclays strategists led by Emmanuel Cau, said in a note to clients. The Stoxx 600 has seen a solid performance this year so far, with a gain of nearly 18%, just behind a 20% rise for the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.30% .
Cau and the team said they see catch-up potential for value/reflation plays after summer, and have swapped an overweight in technology and mining for luxury goods and autos, and remain overweight on banks and energy.
“Stagflation is on everyone’s lips, but this looks excessive to us. While the growth-inflation-policy mix is arguably less bullish now, we still find it supportive of equities,” said the Barclays team. They offered three reasons for this, including the likelihood that economic reopenings will carry on despite the delta variant, more fiscal stimulus in the U.S. and China should help, alongside pent-up services demand, and inflation will likely be transitory, allowing a slow pace of unwinding liquidity by the Federal Reserve and the European Central Bank (ECB).
The European Central Bank is due to meet Thursday, with economists expecting the central bank will pare the rate of bond purchases made using the central bank’s Pandemic Emergency Purchase Program.
The pharmaceutical sector was the weakest, with shares of Novartis /zigman2/quotes/203286410/delayed CH:NOVN -0.22% were down 2.3% and those of AstraZeneca /zigman2/quotes/200304487/composite AZN +0.97% /zigman2/quotes/203048482/delayed UK:AZN +1.08% fell 2%. Shares of Sanofi fell 2.1%. The French pharmaceutical announced it had agreed to acquire U.S.-based biopharmaceutical company Kadmon Holdings /zigman2/quotes/208978354/composite KDMN +9.53% in a deal worth $1.9 billion .
Shares of Siemens Gamesa Renewable Energy /zigman2/quotes/205820667/delayed ES:SGRE +1.61% slid 7% and Siemens Energy /zigman2/quotes/221435471/delayed XE:ENR -0.86% dropped 6% after the renewable energy companies were each cut to neutral from overweight at JPMorgan. For Siemens Gamesa, analyst Akash Gupta said the earnings downgrade cycle will likely last longer. That downgrade led to the cut for Siemens Energy, which owns 67% of Siemens Gamesa.
The airline sector was among the brighter spots, with shares of easyJet up more than 3% and stock in Flughafen Zurich /zigman2/quotes/208931828/delayed CH:FHZN -2.06% , Aeroports de Paris /zigman2/quotes/203616065/delayed FR:ADP -0.69% , Deutsche Lufthansa /zigman2/quotes/201210530/delayed XE:LHA +0.82% , Ryanair Holdings /zigman2/quotes/202851567/delayed UK:RYA +0.37% and Wizz Air /zigman2/quotes/210449062/delayed UK:WIZZ +3.19% all up by 2% or more.
That sector climbed after The Daily Telegraph reported that the U.K. government may scrap its green and amber travel rules, rather developing a system around the vaccination status of travelers, instead of the intended country being visited.
Also rising were shares of B&M European Value Retail /zigman2/quotes/208742159/delayed UK:BME +0.36% , up nearly 6% and the Stoxx Europe 600’s best performer after an upbeat first-half update.