European Equity Benchmarks Close Mixed; Investors Favor Financials, Automotive Stocks Over Mining, Industrials

The broad-based major European indices closed relatively flat in Monday trading as the UK market edged higher, while the continental markets moved slightly lower.

In economic news, July data signaled a disappointing start to Q3 for the UK service sector, according to IHS Markit, with business activity and incoming new work rising at softer rates than in June. Higher staff wages and rising fuel bills resulted in another strong increase in average cost burdens in July. However, the rate of input price inflation eased since June, which contributed to a softer increase in average prices charged by service sector companies.

At 53.5 in July, down from 55.1 in June, the seasonally adjusted IHS Markit/CIPS UK Services PMI Business Activity Index indicated the slowest expansion of service sector output since April.

“The UK services sector experienced a few bumps in the road in July as consumer and client confidence remained persistently half-hearted, and pessimism around the performance of the UK economy along with Brexit concerns lingered,” said Duncan Brock, group director at the Chartered Institute of Procurement & Supply. “Levels of new orders and jobs growth were affected along with business optimism which remained below the long-term average even with July’s three-month improvement.”

IHS Markit also reported that growth of construction activity in Germany ground to a halt in July, with a downturn in civil engineering work coinciding with slower expansions in commercial and housing activity. The latest rise in employment in the sector was the slowest seen for one-and-a-half years, while subcontractor availability showed a further steep decline, said IHS.

“The construction sector struggled for traction at the start of the third quarter, with the level of total industry activity in July unchanged from the month before,” said Phil Smith, Principal Economist at IHS Markit. “Constructors continue to look to boost employment numbers; however, an ever-tightening labor market has seen the pace of hiring drop off in recent months and the availability of subcontractors also continues to worsen.”

Also in Germany, the Federal Statistical Office (Destatis) reported that price-adjusted new orders in manufacturing had decreased in June a seasonally and calendar adjusted 4.0% from the previous month. Price-adjusted new orders without major orders in manufacturing had decreased in June a seasonally and calendar adjusted 3.2% from May. Domestic orders decreased 2.8%, and foreign orders decreased 4.7% in June compared to the previous month. New orders from the euro area were down 2.7%, new orders from other countries decreased 5.9% compared to May.

In equities, financial services firm Hargreaves Lansdown, and telecommunications operator BT Group led the gainers on the FTSE, which closed slightly higher despite slumping mining stocks. They rose 2% and 1.8% respectively, followed by pharmaceutical firm GlaxoSmithKline, which climbed 1.6%. Paper-based packaging company Smurfit Kappa Group, and industrial equipment rental company Ashtead Group were up 1.5% and 1.2%, while home builder Barratt Developments, and oil company BP each closed 1.1% higher.

In Frankfurt, Industrial gases company Linde helped nudge the DAX into negative territory, falling 7.5%, followed by industrial group Thyssenkrupp, which dropped 0.9%. Footwear and apparel retailer Adidas, and airline operator Lufthansa each dropped 0.7%, while real estate firm Vonovia was off 0.5%.

In Paris, steel and mining company Arcelormittal led the CAC lower, falling 1.8%, followed by hotel operator Accor, which lost 1.2%. IT and consulting firm Cap Gemini was off 0.8%, while bank BNP Paribas, and IT firm Atos each closed 0.7% lower. Veolia Environnement, an environmental services firm, was down 0.6%, while pharmaceutical company Sanofi, and distilled beverage maker Pernod Ricard each closed 0.5% lower.

The FTSE gained 0.06%, the DAX lost 0.14%, and the CAC-40 declined 0.03%.