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Europe: Shares retreat from 12-month highs on Hexagon outlook, dimmer rate cut hopes

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[BENGALURU] European shares broke a six-day winning streak on Friday as poor German data and a downbeat outlook from Sweden's Hexagon weighed, and losses deepened after strong US jobs data saw investors trimming bets of an aggressive rate cut by the US Federal Reserve this month.

The pan-European STOXX 600 index finished down 0.7 per cent on broad-based losses, capping the week's gains at 1.4 per cent. The index retreated from more than 12-months highs hit a day earlier, fuelled by hopes of easier monetary policy from major central banks.

The strong rebound in US job growth in June tempered expectations that the Fed would cut interest rates by 50 basis points this month, which sent the dollar higher and US stocks lower.

However, bets of a 25 basis point cut were still in play as data showed wage gains in the US were tepid.

"These (jobs growth) are good numbers, but a rate cut in July is still all but inevitable," said Luke Bartholomew, investment strategist at Aberdeen Standard Investments.

Hopes of accommodative monetary policy by major central banks and a US-China trade truce were drivers of a fourth week of gains for the European stocks benchmark.

With talks between Washington and Beijing set to resume next week, Citi economist Catherine Mann warned that the truce had not removed the uncertainty that is still weighing on the global growth outlook.

Swedish industrial technology group Hexagon is among those suffering. It announced 700 job cuts and warned of a drop in quarterly organic sales.

One trader said the "fairly big cut for a one-month downturn" had sent shockwaves through local firms and any with exposure to China.

Hexagon shares tumbled 11 per cent to the bottom of the STOXX 600 for their worst day in almost nine years.

That, along with news that German industrial orders had fallen far more than expected in May, weighed on industrial stocks such as Schneider Electric, Siemens and Sandvik.

The industrial goods sector was among the biggest decliners, down 1.9 per cent in its worst session since May.

Samsung Electronics forecast a plunge in its second-quarter operating profit. citing the US-China trade war, and dragged European chipmakers AMS, STMicroelectronics and Siltronic down more than 2.4 per cent.

The tech index slid 1.3 per cent.

Meanwhile, bank stocks, which tend to gain in a high interest rate environment, rose 0.3 per cent.

REUTERS