September 23, 2019 / 7:30 AM / 2 months ago

Weak business surveys cast pall over European stocks

(Reuters) - Euro zone stock markets clocked their worst day in one month on Monday after dismal business activity readings from across the currency bloc deepened fears of a looming recession and suggested more stimulus was required.

FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, September 20, 2019. REUTERS/Staff

After logging five straight weeks of gains, euro zone stocks .STOXXE slipped 1% as surveys showed growth in services and manufacturing in the region stalled in September. As a result, bets on rate cuts accelerated in euro zone money markets.

Germany's DAX index .GDAXI fell 1% to post its biggest one-day fall since Aug 23 as the latest purchasing managers numbers showed its manufacturing sector sinking deeper into recession.

“If nothing else, the readings... all but guarantee that ECB stimulus efforts will expand and be sustained,” said Ken Odeluga, a market analyst at City Index. “How effective they may be is another question entirely.”

European Central Bank chief Mario Draghi said the data justified the bank’s indefinite stimulus promised earlier this month and reiterated his call on governments to step up their efforts as monetary policy can only prop up domestic confidence.

Banks were the worst hit, with the eurozone banking index .SX7E slumping 2.8. This included a 7.5% slump in Commerzbank (CBKG.DE) after Moody’s said the German bank’s restructuring plan is negative for its credit rating.

The broader pan-European index that includes stocks outside the euro zone slipped 0.8%, breaking three sessions of gains.

Persistent concerns over U.S.-China trade tensions were also a reason for investors to jettison stocks and move to the safety of bonds. Market participants are still unconvinced that a trade deal between the two countries is likely anytime soon.

U.S. and Chinese officials described the deputy-level trade talks last week as being “constructive” and “productive”, but this came after a Chinese agriculture delegation canceled a visit to U.S. farms in Montana on Friday.

“What we’d like to see is concrete progress and that is the thing we’re lacking,” said IG Markets analyst Chris Beauchamp.

Trade-reliant sectors such as mining .SXPP, auto and parts .SXAP and technology .SX8P were among the biggest decliners, losing at least 1.7% each.

Shares of TUI (TUIT.L) jumped 7.2 to top the STOXX 600 and EasyJet (EZJ.L) followed on expectations their businesses will benefit from the collapse of British rival Thomas Cook TCG.L.

These moves, along with a drop in the pound GBP=, helped limit losses on London's FTSE 100 .FTSE to 0.3%.

Reporting by Shreyashi Sanyal, Sruthi Shankar and Susan Mathew in Bengaluru; Editing by Patrick Graham and Dan Grebler

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