Market Analysis

Tech stocks lead the decline in European markets as investors process PMI data

Amos Simanungkalit · 03 Oct 20249.7K Views

European shares fell on Thursday, pressured by declines in the German technology firm SAP, as investors digested important inflation data from the region and its major economies.

The benchmark pan-European STOXX 600 index decreased by 0.8%, closing at 516.80 points.

The automobile sector experienced the most significant drop, down 2.1%, marking its lowest level in nearly a year. This decline was largely attributed to a 4.7% decrease in Stellantis (NYSE: STLA) after Barclays downgraded the stock from "overweight" to "equal weight."

SAP saw a 1.5% decline, negatively impacting the heavyweight technology sector, which fell nearly 1%. This was triggered by reports that U.S. prosecutors are expanding an investigation into potential price-fixing activities by the German software developer.

All other sub-sectors within the STOXX 600 also registered losses.

Among regional indices, France's CAC 40 was the hardest hit, dropping 1.1%, while Germany's DAX fell by 0.9%. Meanwhile, Britain's FTSE initially rose 0.3% following a report that Bank of England Governor Andrew Bailey indicated the central bank could accelerate interest rate cuts if inflation trends continue to improve, but it later flattened out.

Ben Laidler, head of equity strategy at Bradesco BBI, commented, "The stall in the Chinese market rally, rising oil prices, increasing bond yields, and a stronger dollar are putting pressure on the bullish outlook." He noted, "We’re seeing some natural profit-taking, and traders are awaiting insights from the reopening of China and the U.S. payrolls report on Friday."

Additionally, PMI data revealed that Eurozone business activity contracted in September, registering a decline to 49.6 from August’s 51. The September services PMI figures indicated that Italy’s service sector nearly stagnated, while France’s sector contracted, reversing growth driven by the Olympics in August. In Germany, growth in the services sector has slowed for the fourth consecutive month, nearing a standstill.

This data reinforced expectations for an interest rate cut during the European Central Bank's meeting scheduled for October 17. Supporting this sentiment, ECB board member Isabel Schnabel stated that it is becoming increasingly likely that Eurozone inflation will ease back to the central bank's target of 2%, softening her previous warnings regarding the challenges of controlling price growth.

Eurozone producer prices data is expected to be released at 0900 GMT.

On an individual stock level, potash and salt miner K+S saw a significant drop of 6.8%, landing at the bottom of the STOXX 600, after J.P. Morgan downgraded the stock from "overweight" to "neutral."