June 21, 2018 / 7:49 AM / a month ago

European autos sink on Daimler tariff hit while markets wilt

LONDON (Reuters) - Autos stocks slammed the brakes on a relief bounce in European shares on Thursday, sinking after German carmaker Daimler (DAIGn.DE) warned profit would be hit by higher tariffs.

FILE PHOTO: The German share price index, DAX board, is seen at the stock exchange in Frankfurt, Germany, March 20, 2018. REUTERS/Staff/Remote

The autos sector fell 2.3 percent to a nine-month low while the pan-European STOXX 600 eased down 0.2 percent as no new salvos were exchanged in an ongoing U.S.-China trade spat.

Equity markets have been relatively resilient in the face of mounting trade concerns but fell broadly this week as U.S. President Donald Trump threatened additional tariffs on $200 billion worth of Chinese goods.

Daimler became one of the biggest global companies to cut its guidance on trade tensions, warning profits would be hit in part by Chinese tariffs on car imports from the United States.

Daimler (DAIGn.DE) shares fell 4.4 percent to their lowest in nearly two years.

Some analysts were skeptical of Daimler’s timing, saying the profit warning may be more driven by internal pressures than the external trade environment.

But UBS analysts said they expected consensus earnings estimate downgrades of 5 to 7 percent for the carmaker.

BMW (BMWG.DE) fell 3 percent and Volkswagen (VOWG_p.DE) fell 2.3 percent. Tyre maker Continental (CONG.DE) declined 1.6 percent.

France’s Peugeot (PEUP.PA) fell 1.3 percent, while auto supplier Valeo (VLOF.PA) declined 0.5 percent. Italy’s Fiat Chrysler FCAH.MI lost 1.8 percent.

Germany's DAX .GDAXI underperformed peers down 0.5 percent due to the carmakers' losses.

Financials stocks were the biggest weight on the STOXX after two leading eurosceptics from the far-right League were named to head Italian parliamentary finance committees.

Italy's FTSE MIB .FTMIB fell 1.3 percent, underperforming European peers as bank stocks .FTIT8300 tumbled, while Italian bond yields rose as the appointments reignited investors' fears around Italy's new populist government.

University professor Alberto Bagnai, who was named head of the Finance Committee in the Senate, published “Il tramonto dell’euro” (“The sunset of the euro”) in 2012.

Despite Daimler’s comments, some investors saw trade war fears as a chance to buy stocks at slightly cheaper prices.

“We’re actually looking at it as an opportunity to add some risk back into portfolios and use some of the cash that we built up,” said Rory McPherson, investment director at Psigma Investment Management.

“It’s really been consumer discretionary and autos in particular that have been hit so far by concerns about trade wars but actually the underlying drivers of the market - tech, energy, healthcare, have been really strong,” he added.

The tech-heavy Nasdaq index had a record high close on Wall Street on Wednesday.

Healthcare stocks were the top boost to European indices as Novo Nordisk (NOVOb.CO) jumped 4.4 percent to the top of the STOXX after the pharma company announced PIONEER-4 and PIONEER-7 trial results for its experimental diabetes pill.

“Both trials delivered in terms of glucose control as well as weight loss regardless of the statistical analysis,” said UBS analysts.

Consumer staples stocks such as British American Tobacco (BATS.L), Unilever (ULVR.L), ABInBev (ABI.BR) and Nestle (NESN.S) also provided support. The dollar earners have benefited from the recent strength in the dollar.

To view a graphic on German auto stocks falling, click: reut.rs/2MJ0zff

Reporting by Helen Reid, editing by Danilo Masoni

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