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Europe: Shares slide, volatility jumps on growth and trade fears

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[BENGALURU] European shares slid on Tuesday as risk appetite took a hit from the European Commission trimming euro zone growth forecasts and pessimism among investors on the path ahead for US-China trade talks.

The European Commission now expects euro zone growth of 1.2 per cent in 2019 and halved this year's growth forecast for Italy to 0.1 per cent. Meanwhile, a spokesman for China's foreign ministry said mutual respect was the basis for reaching a trade deal and adding tariffs could not solve any problem.

The pan-European Stoxx 600 index slid 1.4 per cent on its worst day in three months, while the volatility gauge on euro zone blue-chips hit its highest in more than six weeks before dipping marginally.

"While we have seen a continued focus on weaker growth in China as a result of these trade talks, Europe is also feeling the contagion effects of such a slowdown," Joshua Mahony, senior market analyst at IG, wrote in a note which cited the forecasts.

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"Germany remains the most important EU casualty of the recent breakdown in growth and trade."

Italian stocks gave up early gains and fell 0.9 per cent, while their London-traded peers slid 1.6 per cent as investors returned from a long weekend.

Germany's trade-exposed DAX also slid 1.6 per cent. German industrial orders rose less than expected in March, data showed.

Bank shares tumbled 2.4 per cent on their worst day in close to five months.

Milan-listed FinecoBank fell the most on the sector index, down 7.5 per cent, as top Italian lender UniCredit said it was considering cutting its stake in the online broker.

"The timing is a little surprising and may reignite concerns that UniCredit are still facing upwards pressure of capital requirements. However, this decision does seem more strategic than forced," said Russell Quelch, financials analyst at Redburn.

David Grinsztajn, senior banking analyst at AlphaValue, said there was no strong correlation now between growth and lenders' asset quality, probably due to low interest rates. So, the cuts in the European Commission's growth expectations would not have a prolonged impact on banking stocks, he predicted.

Oil and gas stocks dived 2.5 per cent, against a backdrop of a 1.6 per cent slide in Brent futures on renewed doubts over US-China trade talks.

Tariff-sensitive stocks of auto-makers and their suppliers fell 1.4 per cent. BMW dropped 2.3 per cent on reporting a sharp slide fall in quarterly operating profit, on a hit from higher investment spending and a legal provision.

Defensive real estate stocks, which generally move in the opposite direction to interest rates, gained 1.1 per cent. Germany's Vonovia tacked on 5.2 per cent after boosting its full-year profit guidance.

REUTERS