European stocks drop from one-month high

Bloomberg

European stocks retreated from a one-month high reached on Monday after Germany reported weaker-than-expected industrial data.
The Stoxx Europe 600 Index dropped 1.1% as of 10:18 am in London, with all 19 industry groups lower. Technology and real estate shares led losses, while autos outperformed. Germany’s DAX Index dropped 1.4% after May factory orders missed forecasts.
Adding to the gloom, the European Commission forecast a deeper contraction than previously estimated for the euro area’s economy this year. Although the Stoxx 600 had rallied on stimulus measures and bets of an economic recovery, rising coronavirus infections in parts of the world are casting a shadow on the rebound.
Technicals are also signalling obstacles to overcome for further gains, with Euro Stoxx 50 futures testing the 200-day moving average.
“Data on German industrial production was disappointing and below market participants’ expectations,” Andreas Lipkow, a strategist at Comdirect Bank, said in an email, noting that state aid programs had not yet helped fuel a faster recovery. “The damage in the real economy is enormous and has left deep marks on several companies from almost all industries.”
Investors are also focusing on corporate health as the second quarter earnings season begins.
Micro Focus International Plc slid 10% after writing off $922 million because of Covid-19 uncertainty. Bayer AG dropped 6.2% after a U.S. judge asked to oversee yet-to-be filed lawsuits over the company’s Roundup weedkiller and expressed skepticism about the proposal’s legal validity.
“Premature withdrawal of fiscal stimulus is one of the key risks that I see to the outlook from here, along with the fact that the virus remains a problem and isn’t under control in the U.S. and parts of the emerging world,” said Mike Bell, global market strategist at JPMorgan Asset Management. “I would avoid overweights to the most expensive, frothy areas of the market in terms of growth, still focusing on the quality stocks that can comfortably get through this recession even if vaccine takes longer to arrive.”