European Shares Slip Amid Dollar Weakness and Middling Growth Figures -- 2nd Update

By Mike Bird and Kenan Machado 

European stocks dipped slightly in early trading Monday as the weakness of the U.S. dollar continued to affect global markets.

The Stoxx Europe 600 index was down by around 0.4% in midmorning trading, weighed down by a 0.9% fall in Britain's FTSE 100 and a 0.4% drop in Germany's DAX.

Fresh economic data for the eurozone on Monday suggested the economy grew slightly more slowly than analysts had expected during July. The IHS Markit flash purchasing managers index, a key business survey, came in at 55.8. That is lower than the 56.2 analysts had expected, and a six-month low for the index. Any figure above 50 indicates an economy is growing.

Shares of major European auto makers were among the hardest hit on Monday, after the European Commission's confirmation that it is assessing accusations of coordination efforts by rival companies to manipulate diesel engines to reduce emissions.

Shares in Volkswagen, Daimler AG and BMW fell by 2.7%, 3.3% and 2.3% respectively.

In foreign-exchange markets, the euro touched its highest intraday level since January 2015 during the early Asian trading session Monday, above $1.168. The dollar fell 0.13% to 110.8 against the Japanese yen.

On Friday, the WSJ Dollar Index reached its lowest close since Sept. 30, down 6.92% since the beginning of the year. The index was down another 0.1% on Monday.

Concern about policy direction from the White House and Capitol Hill since the failure to repeal the Affordable Care Act and investigations into contacts with Russians before November's election have helped fuel dollar selling.

Sentiment on the dollar will stay negative until there is a string of upbeat U.S. economic data along with a hawkish Federal Reserve and a dovish European Central Bank, said Kay Van-Petersen, a macro strategist at Saxo Bank in Singapore. The Fed is scheduled to meet this week.

A stronger euro has knock-on effects for the European economy and can weigh on earnings expectations for export-oriented firms.

"If the euro remains at or above current levels, it is likely increasingly to have a bearing on the euro area economic outlook, weighing somewhat on GDP growth via net trade," said Chris Scicluna, head of economic research at Daiwa Capital Markets Europe.

Oil prices were slightly lower Monday as the Organization of the Petroleum Exporting Countries continued to grapple with the growing challenges to removing what it sees as a global oversupply of oil from the market.

Despite a deal struck last year to take out almost 1.8 million barrels of crude oil from the global market, prices remain stubbornly low. West Texas Intermediate crude oil for delivery in September fell 0.3% to $45.64 per barrel Monday.

The Nikkei closed 0.6% lower on Monday. Among the biggest stock decliners in Japan were export-reliant companies, as is often the case when the yen strengthens, since that eats into such firms' earnings.

Meanwhile, fresh declines in Japanese bond yields hit insurers, which are heavy investors in fixed income. Dai-ichi Life and T&D Holdings slid more than 1.7%.

Beyond Japan, most indexes moved little from Friday's closing levels, though the Chinese startup-heavy ChiNext index in Shenzhen fell 0.2% amid continued regulatory worries.

Hong Kong's Hang Seng Index, however, rose 0.5% after its nine-session winning streak ended Friday. Developer stocks gained, with Sunac China, Times Property and Yuzhou Properties hitting fresh record highs as Sunac's chairman said cash flow remained the firm's priority amid a Beijing-directed scrutiny.

Write to Mike Bird at [e-mail] and Kenan Machado at [e-mail]

(END) Dow Jones Newswires

July 24, 2017 05:47 ET (09:47 GMT)

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