LONDON (Reuters) - Euro zone shares tumbled on Friday as autos and banks stocks gave up their gains amid rising trade tensions which caused a selloff in the Chinese yuan and U.S. stock markets overnight.
Autos shares .SXAP, the most sensitive to trade tensions as U.S. officials work toward slapping tariffs on car imports, were the biggest fallers, down 0.9 percent, having enjoyed some relief this week.
Financials were the biggest drag as rising tensions in Italy’s ruling party drove a selloff in the country’s bonds.
Italy's FTSE MIB .FTMIB fell 0.5 percent, underperforming peers as bond yields rose, weighing on banks .FTIT8300 which are big holders of Italian debt.
Euro zone banks .SX7E fell 0.4 percent, sending the euro zone stocks index .STOXXE down 0.1 percent.
Despite several big earnings disappointments causing shares to slide, losses on the STOXX were limited by investors’ bid for sectors like healthcare and consumer staples, considered less risky.
Paper maker Stora Enso (STERV.HE) fell 10.5 percent after reporting that second-quarter profits missed expectations, blaming production problems, maintenance and tight wood supply.
Swedish builder Skanska (SKAb.ST) was another prominent faller, down 5.6 percent after reporting an unexpected drop in second-quarter profit due to new project writedowns at its struggling U.S. construction business.
Overall European stocks are expected to report stronger earnings growth in the second quarter, while investors are honing in on companies’ future guidance for any change due to current or potential tariffs, with autos particularly in focus.
“Numbers for Q2 are probably not so much impacted from trade conflict, but I think everyone is curious to see if companies see any indications of delayed capex decisions, for example, on the back of more noise coming from the political front,” said Britta Weidenbach, head of European equities at DWS.
French car parts maker Faurecia (EPED.PA) initially made gains after it reported higher first-half profit and raised its outlook, but fell back 5.2 percent as analysts saw margin growth as disappointing.
“The discussions around trade are simply not helpful when it comes to the risk premia for autos companies - and that’s not helpful for valuations,” said Weidenbach.
Goldman analysts raised Recordati to a “buy”, saying they saw the possibility for an accelerated M&A strategy, while a top-ranked Jefferies analyst upgraded Orion to “hold”, saying prostate cancer data in September would be a crucial catalyst for the stock.
Meanwhile, big profit warnings savaged some shares outside the large-caps.
Shares in food processor Wessanen (BSWSc.AS) fell 22 percent to a one-year low after the firm cut its organic growth outlook for the year to “moderate”.
Belgian steel wire maker Bekaert (BEKB.BR) plunged 18 percent, hitting a five-year low after saying it expected underlying operating profit 20 percent below analysts’ estimates in the first half, blaming wire rod costs partly driven up by tariffs.
Reporting by Helen Reid; Editing by Kit Rees and Matthew Mpoke Bigg