Europe close: Shares end lower despite US holiday
European stocks closed in the red, with car makers losing out as investors digested comments from US President-elect Donald Trump.
The Stoxx Europe 600 index fell 0.81% and Germany’s DAX dropped 0.64%, while France’s CAC 40 was 0.82% lower.
Meanwhile, oil prices edged lower as traders looked ahead to production data released by the Organisation of Petroleum Exporting Countries (OPEC) on Wednesday to check if member states have met the production targets set in an agreement signed last year. West Texas Intermediate edged lower by 0.23% to $52.25.
The pound fell below $1.20 in overnight trading - for the first time since the October ‘flash crash’ - following a Sunday Times report that Prime Minister Theresa May will indicate in her speech on Tuesday that she plans to pursue a ‘hard’ Brexit and quit the European Union’s single market to gain more control over migration and the country’s laws.
Luzdary Hammad, research analyst at FXTM, said: “It is becoming quite clear that the persistent Brexit woes and ongoing uncertainty have left the Pound vulnerable to extreme losses with anxiety over a rigid divorce from the European Union exposing the currency to further downside risks in the future.
“While most anticipate Theresa May to provide some clarity on Tuesday on how the UK plans to move forward with the hard Brexit scenario, there is a threat of the Sterling sinking deeper into the abyss if investors are left empty-handed instead.”
Meanwhile, US President-elect Donald Trump has pledged to agree a quick trade deal between the US and Britain once it has exited from the European Union.
In an interview with Conservative MP and leading Brexiteer Michael Gove for The Times, he said: "I think Brexit is going to end up being a great thing. I’ll tell you, the fact that your pound sterling has gone down? Great. Because business is unbelievable in a lot of parts in the UK."
On the data front, the Eurozone seasonally adjusted trade balance for November 2016 came in above the consensus of €22bn at a surplus of €25.9bn, up from €22.9bn in November 2015.
Pantheon Macroeconomics said: “The headline looks great, but it only partially reverses the sharp fall in October. The higher surplus was chiefly a result of a 3.3% month-to-month jump in exports due to strong performance in Germany and France. Our estimates for Q4 net trade in these two economies suggest that net exports in the Eurozone as a whole provided a moderate boost to quarter-on-quarter GDP growth.”
In corporate news, German luxury fashion house Hugo Boss was in the green despite recording a slight fall in fourth-quarter sales, confirming its outlook for lower full-year profits. It did however say that it expected operating profits in March to reach the upper end of its forecast.
Italian eyewear designer Luxottica and French lens maker Essilor rallied after the two companies announced a merger worth about €46bn.
Fund manager Ashmore advanced as it said it was confident of a strong 2017 despite a drop in quarterly assets under management.
On the downside, car makers BMW, Volkswagen and Daimler skidded after Trump said in an interview with Germany’s Bild newspaper that cars manufactured in Mexico would be taxed 35% if exported to the US.
"I would tell BMW that if you are building a factory in Mexico and plan to sell cars to the US without a 35% tax then you can forget that," said Trump.
Swedish clothing retailer H&M was on the back foot after it reported a 6% jump in year-on-year sales in December, which was the slowest pace since September and weaker than expected.
Royal Bank of Scotland was weaker after Goldman Sachs downgraded the stock to ‘neutral’ from ‘buy’ on valuation grounds and removed the stock from its Pan-Europe Buy List.
Vodafone was also under pressure after HSBC cut its rating to ‘hold’ from ‘buy’ and trimmed the price target to 240p from 270p.