Europe closes in the red as Broadcom warning rocks chip sector

(Reuters) - Trade-sensitive technology stocks led losses in European markets on Friday after U.S. chipmaker Broadcom’s sales warning and disappointing industrial data out of China came as the clearest signs yet of the damage trade war may do to global growth.

The pan-European STOXX 600 index closed down 0.4%, with Frankfurt’s DAX index, which lists Europe’s largest chipmaker Infineon, falling 0.6%.

Broadcom, one of the biggest U.S. players in the chip sector, blamed the $2 billion hit to its 2019 sales on trade tensions and the ban on doing business with Huawei Technologies.

The warning battered European peers as concerns about a hit to earnings from a prolonged U.S.-China trade war fed into fears of slowing chip demand.

Infineon, AMS and STMicroelectronics, Siltronic, Dialog Semiconductor fell between 2.5% and 5.5% and pulled the technology sector down 1.8%.

“This is unlikely to be Broadcom specific but a trend to expect in the second half of this year,” said Neil Campling at technology analyst at Mirabaud Securities in London.

“The outlook of a rebound for the chip sector, which many hope for, is highly unlikely to materialize.”

Earlier, Chinese data showed industrial output growth slowed to a more than 17-year low in May and sent the euro zone bond yields to fresh lows.

However, Friday’s losses were not severe enough to erode the gains built this week on hopes that monetary easing in Europe and the United States would offset the concerns over growth that drove a sell-off in May. The STOXX 600 ended the week up about 0.4%, its second consecutive week of gains.

“The flight to safety in bonds isn’t all to do with the rate cut expectations. It is about taking the money out and putting it somewhere more defensive. Autos, banks and techs are the lowest so clearly there is a rotational trade,” said Mark Taylor, sales trader at Mirabaud.

Mining and auto stocks which typically fall on trade concerns, fell about 0.9% each.

Utilities, among sectors considered as bond-proxies, rose 0.5%, helped by shares of National Grid, which was upgraded by Bernstein and France’s Rubis.

Brokerage recommendations also drove moves in shares, with Swedish oil firm Lundin Petroleum rising 2.9% after Goldman Sachs upgraded its shares to “buy” from “neutral”.

DKSH Holdings tumbled 10% after Credit Suisse downgraded shares of the Switzerland-based consultancy to “underperform”.

Additional reporting by Amy Caren Daniel in Bengaluru and Josephine Mason in London; editing by Patrick Graham