Europe close: Stocks drop amid softer economic data, pandemic worries

European stocks finished firmly in the red on Tuesday, weighed down by weaker-than-expected economic reports out in the US.

Also dampening risk appetite was news from Israel that Pfizer's Covid-19 vaccine might be moderately less effective at preventing infections from the Delta variant also weighed on sentiment.

"US Treasury yields are on the slide once again today, with a downturn in economic data doing little to boost sentiment around the recovery pathway," said IG senior market analyst Josh Mahony.

"European markets have slumped alongside US indices, which appear to be resurfacing from their extended weekend with a largely pessimistic tone."

The benchmark Stoxx 600 index slipped 0.52% to 455.98, while France’s CAC 40 was 0.91% lower at 6,507.48 and Germany’s DAX fell 0.96% to 15,511.38

The US Institute for Supply Management's services sector Purchasing Managers' Index slipped from a reading of 64.0 in May to 60.1 for June (consensus: 63.8).

In parallel, out of Israel, preliminary government data showed full innoculation with Pfizer's jab was only 64% effective against the Delta variant of the novel coronavirus and not 94% as with some of the other variants.

Weighing on Germany's top-flight index meanwhile were figures released by Destatis showing German factory orders unexpectedly slumped 3.7% month-on-month in May (consensus: 0.9%) amid weakness in the auto sector.

Nontheless, factory orders rose by 54.3% on the year in May and were 6.2% stronger than in February 2020.

"The unexpected decline in factory orders marks the steepest since the first lockdown and highlights the uneven nature of the global economic recovery as supply-chain issues persist," said Oanda market analyst Sophie Griffiths.

There was more bad news for Germany in the form of the latest ZEW survey. The investor expectations index fell to 63.3 in July from 79.8 in June, coming in well below consensus expectations for a reading of 75.2.

Pantheon Macroeconomics said: "Today’s ZEW matches yesterday’s Sentix, indicating that expectations are now softening, even as current conditions improve. The headline decline pulled expectations down to a six-month low, while the current situations index jumped to a 29-month high go 21.9, from -9.1 in June.

"Soaring current assessment amid falling expectations usually isn’t a good sign in these data, indicating that the good news is all but priced in."

On the corporate front, Alstom slumped after the French train maker said it expects significant negative cash flow this year.

Elsewhere, stock in London-listed online supermarket Ocado fell after it said first-half losses narrowed as retail revenue rose during further Covid-19 restrictions in the UK. The pre-tax loss for the six months to the end of May was £23.6m compared with £40.6m a year earlier as group revenue rose 21.4% to £1.32bn.