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(Reuters) -European shares fell to one-week lows on Tuesday, with economically sensitive sectors leading the selloff as weak services sector data from China and the euro zone fuelled concerns about slowing global growth.
The pan-European STOXX 600 index was down 0.7%, its fifth consecutive session of losses.
China-exposed sectors such as luxury and construction & materials were among the top drags in Europe as data showed China’s services activity expanded at the slowest pace in eight months in August.
Meanwhile, the decline in euro zone business activity accelerated faster than initially thought last month as the dominant services industry fell into contraction, according to a survey which suggests the bloc could fall into a recession.
HCOB’s final Composite Purchasing Managers’ Index (PMI) for the euro zone dropped to 46.7 in August from July’s 48.6, a low not seen since November 2020.
“Not only is manufacturing in contraction, but services has also followed it. Services had been until this month a bit of an outlier when it came to the performance of the European economy,” said Michael Hewson, chief market analyst at CMC Markets (LON:CMCX).
“The calls for an ECB (European Central Bank) hold next week are only going to get louder.”
Money markets are pricing an about 25% chance of a 25 basis point (bps) rate hike at the Sept. 14 meeting, easing from around 30% before the PMI data.
Meanwhile, an ECB survey showed consumer expectations for euro zone inflation in the coming years edged up, likely adding to worries that the decline in price growth could stall above the bank’s target.
The ECB’s Consumer Expectations Survey showed inflation expectations three years ahead rising to 2.4% in July from 2.3% in June, above the ECB’s 2% target.
A slew of brokerage downgrades also weighed on stocks.
Roche dropped 1.3% after Berenberg downgraded the Swiss pharmaceutical firm to “hold” from “buy”, saying it does not see enough catalysts to boost the stock.
Credit Agricole (OTC:CRARY) dropped 2.7% after Goldman Sachs downgraded the French bank to “sell”, while Commerzbank (ETR:CBKG) slid 4.5% as Barclays cut its rating on the German lender’s stock to “underweight”.
Retailers also tumbled 1.2% after J.P. Morgan downgraded food retailers, citing the prospect of grocery pricing deflation.
