Europe midday: Stocks drop as euro area manufacturing hits 71-month low

Stocks on the Continent have failed to track the strong gains seen overnight on Wall Street, hampered by the weakest reading on euro area manufacturing for 71 months that has pushed yields on long-dated German Bunds back into the negative and the ongoing heightened uncertainty around the UK's exit from the European Union.

On a more positive note, and also overnight, European Union leaders moved to give Westminster time to react in case the British Prime Minister's withdrawal proposal failed again to pass muster in Parliament next week, helping to push the risk of a 'no-deal' Brexit back a little.

As David Madden at CMC Markets UK pointed out: "All the focus has been on the UK regarding Brexit, but the eurozone is struggling, and the last thing Continental Europe needs is a no-deal Brexit."

As of 1214 GMT, the benchmark Stoxx 600 was down by 0.82% to 377.60, alongside a drop of 1.38% to 5,305.82 for the Cac-40 and the FTSE Mibtel off by 1.31% to 21,093.26.

In parallel, the pound was bouncing back strongly against the euro, jumping by 1.01% to 1.1639, while against the US dollar the single currency was down by 0.61% at 1.13052 and the yield on the 10-year German bund was retreating by five basis points to -0.01%.

As an aside, according to Bank of America-Merrill Lynch, European equity funds saw another "substantial" outflow during the preceding week, to the tune of $4.0bn, although that was dwarfed by $13.2bn-worth of outflows from US funds.

Nevertheless, the investment bank's strategists continued to expect the US S&P 500 to push past the 3,000 point mark in the front half of 2019.

IHS Markit's very closely-followed composite PMI output index dropped from a reading of 51.9 in February to 51.3 for March.

But a separate PMI for euro area manufacturing dropped further below the 50 point threshhold that marks increasingly faster falls in levels of activity to reach 47.7 for March, against a reading of 49.4 for February - a 71-month low.

According to Claus Vistesen at Pantheon Macroeconomics, that did not negate the "stabilisation story" for euro are growth, but the trends in Eurozone manufacturing - a marked decline in export orders, overall stagnation in new orders, and order books being run down - were "grueling" and pointed to a "deepening recession" in factory activity.

The same survey compiler's services sector PMI on the other hand fared better, dipping from 52.8 to 52.7.

Outside the euro area, Russia's central bank kept its main policy rate a 7.75% but reportedly also pointed to the possibility of rate cuts as soon as 2019, versus some economists' projections before Friday's meeting for a first reduction in 2020.