Eurozone core inflation rises; Stoxx Europe 600 index ends July with a whimper
European stocks turned lower Monday, as gains for mining stocks couldn't offset concerns about persistent strength in the euro as investors finished up trading for July.
The Stoxx Europe 600 slipped 0.1% to close at 377.85, languishing at its lowest since April, according to FactSet data. Consumer-related, industrial and tech shares fell, but utility and health care stocks were among the advancers.
Monday's loss shoved the pan-European benchmark into the red for July, marking a decline of 0.4%. That adds to June's pullback of 2.7%.
Equities overall swung lower as the euro pushed close to $1.18 against the U.S. dollar, where it hasn't traded above since January 2015.
"The longer this U.S. dollar slump goes on, the more worrying it becomes. It is this that is behind the ongoing rise in the euro and sterling, and it is this that spells trouble ahead for stock markets as August looms," said IG's chief market analyst Chris Beauchamp in an note.
A stronger euro can make products from European exporters for expensive for their overseas clients to purchase. Each 10% on the euro takes 6 percentage points off per-share earnings growth, Credit Suisse said in a research note last week.
French and German equities fell the most Monday, leaving France's CAC 40 index down 0.7% to 5,093.5. Germany's DAX 30 ended the session lower by 0.4% at 12,118.25.
The euro on a trade-weighted basis has risen roughly 5% this year. The shared currency has surged about 12% against the U.S. dollar since the start of 2017.
Read:The S&P 500 and DAX are parting ways and that could set stocks up for a tumble (http://www.marketwatch.com/story/the-sp-500-and-dax-are-parting-ways-and-that-could-be-bad-for-wall-street-2017-07-31)
Miners: The Stoxx Europe 600 Basic Resources Index ended up 0.3%, paring a sharper rise of more than 1%. Data released early Monday showed China's construction activity rose to its highest level since December 2013 on government-backed infrastructure spending. China is a key buyer of industrial as well as precious metals.
See:Can China make the reflation trade great again? (http://www.marketwatch.com/story/can-china-make-the-reflation-trade-great-again-2017-07-28)
Shares of iron ore producer Anglo American PLC (AAL.LN) climbed 1.7% and BHP Billiton PLC (BLT.LN) (BHP.AU) (BHP.AU) tacked on 1% and copper miner Antofagasta PLC (ANTO.LN) rose 0.8%, but finished off session highs.
But China's gauge of manufacturing activity declined to 51.4 in July (http://www.marketwatch.com/story/sluggish-china-factory-data-may-signal-slowdown-2017-07-31), with the report seen by some economists as the first and expected sign the world's second-largest economy is slowing after the government's efforts to rein in a hot property market and rising corporate debt.
Stock movers: Shares of banking heavyweight HSBC PLC (HSBA.LN) (HSBA.LN)(HSBA.LN) ended 1.8% higher after the Asia-focused lender said it would launch another $2 billion in share buybacks (http://www.marketwatch.com/story/hsbc-to-launch-2-billion-buyback-as-profit-up-57-2017-07-31) after second-quarter profit leapt 57% to $3.87 billion.
Sanofi SA (SAN.FR) (SAN.FR) flipped down 1.1%. Shares had been up earlier after the French drugmaker raised its earnings guidance (http://www.marketwatch.com/story/sanofi-profit-falls-10-as-restructuring-costs-hit-2017-07-31) for 2017. Second-quarter net profit, however, did fall by 10% to EUR1.04 billion on higher restructuring costs.
Carrefour SA (CA.FR) fell 1.8% after Deutsche Bank cut its rating on the French supermarket operator to sell from hold, saying the shares were expensive.
Earnings check-in: So far this earnings season, 56% of European companies have beaten per-share consensus estimates, the lowest net beat since the fourth quarter of 2015, Credit Suisse research analysts led by Andrew Garthwaite wrote in a note published Monday.
But sales beats from 58% of companies represent the best top-line pace since the second quarter of 2015. Telecoms, followed by tech, have logged the largest net sales and earnings surprises, while disappointment has come from the utilities, consumer goods and industrial sectors.
"Overall earnings revisions in Europe are very closely following the euro [trade-weighted index], which implies modest further downgrades, though 70% of 2017 [estimated per-share earnings] growth is from sectors that so far have beat estimates," wrote Garthwaite.
"The stronger euro is also one of the reasons why we recently reduced our overweight of Continental Europe," said Credit Suisse, which foresees the euro-dollar pair hitting $1.22 on a 12-month basis. "We are currently estimating European EPS growth for 2017 to come in at 8.4% versus a consensus of 10.7%."
Flash inflation: Eurostat's preliminary headline inflation reading for July held steady at 1.3% year-over-year, meeting expectations in a FactSet survey of economists. Core inflation, which strips out volatile energy and food prices, rose to 1.2% compared with an estimate of 1.1%.
The report comes as the European Central Bank is seen as debating whether and when to begin tapering its stimulus measures for the eurozone economy.
"Although the July estimate of eurozone core CPI inflation at 1.2% y/y was a little firmer than expected, it remains well below the ECB's target," wrote Jane Foley, senior FX strategist at Rabobank. The bank's inflation target is below, but close to, 2%.
Separately, the eurozone's unemployment rate was 9.1% in June, compared with a FactSet estimate of 9.2%.
National indexes: The U.K.'s FTSE 100 closed up 0.1% at 7,372.00, and Spain's IBEX 35 ended down by 0.3% at 10,502.20.
(END) Dow Jones Newswires
July 31, 2017 12:35 ET (16:35 GMT)