Europe open: Shares take downbeat cue from Asia; earnings, Fed in focus

European stocks fell in early trade, taking their cue from a downbeat session in Asia where the Shanghai Composite fell more than 8%, as investors sifted through another batch of corporate news.

At 0855 BST, the benchmark Stoxx Europe 600 index was down 1.2%, France’s CAC 40 was off 1.1% and Germany’s DAX was down 1%.

The Shanghai Composite tumbled on Monday as data showed industrial profits fell 0.3% in June from a year earlier and as commodity prices retreated. The disappointing figures followed on from Friday’s weak manufacturing data, compounding fears of a slowdown in the world’s second-largest economy.

“European shares are starting the new trading week on a negative note as Chinese shares are getting hit hard again,” said Markus Huber, senior analyst at Peregrine & Black. “Concerns regarding another slowdown of the Chinese economy are hurting investors’ confidence. With China becoming ever more important especially for European exporters any signs of a weakening economy are very likely to negatively impact growth of countries like Germany who rely heavily on exports.”

Huber said that for now, European shares appear not to have priced in any further bad news out of China which makes them vulnerable to further losses.

Shares in UBS slipped into the red despite the Swiss bank, which reported a day early, posting a better-than-expected second-quarter profit.

Budget carrier Ryanair was also under pressure after its first-quarter numbers. Although it posted a 25% jump in profit and said full-year results will be at the top ends of its guidance range, the company warned that over-capacity could weigh on average fares.

Publisher Pearson, which was in the spotlight last week after confirming the sale of FT Group to Nikkei for £844m, was also on the back foot after saying it was in discussions regarding the sale of its 50% stake in The Economist.

Reckitt Benckiser bucked the trend, trading up after the consumer goods company raised its like-for-like revenue growth target for the full year and posted a jump in first-half pre-tax profit amid broad-based growth across its businesses.

As well as earnings, investors were looking ahead to the Federal Reserve’s Open Market Committee meeting that will take place on Tuesday and Wednesday, culminating in a rate decision. Although no change in rates is expected until at least September, all eyes will be on the Fed’s guidance for any further clues on the timing of a rate hike.