European shares fall as US data rekindles growth worries

By Shubham Batra and Lisa Pauline Mattackal

(Reuters) -Europe stocks fell on Tuesday in their worst session in nearly a month, as U.S. manufacturing data brought concerns about a slowdown in global growth back to the forefront ahead of an all-important jobs report on Friday.

The pan-European index dropped 1%, with slipping 0.9% from record highs touched earlier in the session. Stocks in France, Spain and Italy dropped between 0.9% and 1.3%.

Declines began early in the session, and increased after U.S. manufacturing data pointed to still-subdued factory activity, increasing jitters over the strength of the world’s largest economy.

All the major European indexes notched their worst session since the global equity selloff in early August that was also sparked by resurgent worries about a U.S. recession.

“Over the summer, market focus has turned from concerns about persistently high US inflation, that would force the (Federal Reserve) to keep rates restrictive, to fears over a slowdown in the US economy,” analysts at Danske Bank said, though noting they see the risk of a recession as low.

Europe’s energy and basic resources sectors led declines, down 2.8% and 3.3% respectively, with the resource sector seeing its worst day since October 2023.

Commodity prices fell as sluggish economic growth in China, the world’s biggest crude importer, increased worries about demand while a report of an imminent deal to resolve disputes over Libyan oil production further weighed on crude.

Equities could struggle for momentum before Friday’s U.S. non-farm payrolls data, a crucial data point as investors assess the possible quantum of an expected Fed rate cut in September. Key economic data for euro zone countries is also due this week.

The European Central Bank (ECB) is also expected to ease policy this month, though many policymakers have reiterated the need for caution and data-dependency.

“We expect a less aggressive cutting cycle by the ECB compared to Fed due to limited slack in the labour market, more persistent inflation and a lower starting point,” Danske Bank analysts wrote in a note.

Rate-sensitive technology stocks on the STOXX 600 also lost ground, falling 2.3% in tandem with U.S. peers. [.N]

Among other movers, Rolls-Royce (OTC:) recovered some ground, rising 1.7% after slumping in its biggest one-day drop this year, following news of an engine component failure at Cathay Pacific Airways (OTC:). The airline said it found 15 aircraft in its Airbus A350 fleet that needed components replaced.

Partners Group slumped 9.2% to the bottom of the STOXX 600 after it missed earnings expectations in the first half of the financial year.