Europe close: Stocks drop as oil prices surge; Volvo Cars tumbles

(Sharecast News) - European stocks closed lower on Friday as worries about AI spending continued to dent sentiment, amid a surge in oil prices.

The benchmark Stoxx 600 index closed down 0.4% at 635.05, Germany DAX fell 0.8% to 25,181.65 and France's CAC 40 was off 0.4% at 7,782.82. At the same time, Brent crude was up 3.6% at $117.23 a barrel and West Texas Intermediate was also 3.6% firmer, at $103.07.

Chris Beauchamp, chief market analyst at IG, said: "Everyone is on notice for potential US attacks on Iran in conjunction with Israel, and as a result Brent crude futures have lurched to their highest level in over four years. Trump wanted a legacy, and he appears to have got it. This time around there is likely to be little breathing room for the global economy - energy stockpiles are much reduced, and Iran is unlikely to hold back this time from a broader range of responses to an attack. This could all get very ugly, very quickly."

Investors were digesting a survey showing that growth in the eurozone private sector eased in October.

The preliminary S&P Global composite PMI output index declined to 51.9 from 53.1 in October. This marked a four-month low but remained above the 50.0 mark that separates contraction from expansion.

The flash services PMI business activity index fell to a two-month low of 51.7 in October from 53.0 the month before, while the manufacturing output index eased to a four-month low of 52.4 from 53.6.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "The eurozone economy starts the fourth quarter with businesses reporting further robust growth, the flash PMI being consistent with GDP growing at a 0.3% quarterly cadence. While that's below the pace enjoyed in September it is still among some of the best performances seen over the past three years.

"A key drag on growth was a renewed drop in business activity in the French services sector. While some of the weakness in France may be linked to strikes and unrest having disrupted some local economies, growth has also edged lower in the rest of the eurozone, both in terms of manufacturing and services activity. Hiring has meanwhile come close to stalling as new order inflows cooled to show only meagre growth.

"Key to the broader slowdown is the further escalation of inflationary pressures seen during the month. Input costs are rising sharply again, the rate of increase surging in manufacturing on the back of higher energy prices, causing firms to push selling prices higher in order to protect margins. "Higher interest rates are also starting to take a toll, dampening demand, and the picture of sustained growth and stubbornly elevated inflation from the October flash PMI will likely add to further speculation of more aggressive policy tightening from the ECB."

In equity markets, Kering shares slid after it reported a fall in sales at luxury brand Gucci amid weak demand in Asia. Group revenue was stable on a reported basis in the third quarter and down 1% on a comparable basis, to �3.34bn. Sales at flagship brand Gucci fell 4% on a reported basis or 6% on a comparable basis to �1.29bn. Kering said the performance of Gucci reflected a more demanding comparison base and a less pronounced newness effect than in the second quarter.

Shares of Volvo Cars tanked after the Swedish car maker announced more job cuts and said it swung to a loss in the third quarter amid ongoing weakness in China. The company, owned by China's Geely, posted a third-quarter loss of SEK3.7bn, versus a profit of SEK5.8bn in the same period a year earlier. Revenue in the quarter fell to SEK66.9bn from SEK86.4bn.

Volvo Cars said the results reflect "a further deteriorating external environment, led by market developments in China and the US".

Revenues in China fell by nearly 50% as Volvo Cars and other legacy premium brands faced hypercompetition from new Chinese alternatives, as well as severe pricing pressure. In the US, Volvo Cars continued to be dented by tariffs and the removal of consumer incentives for electrified cars, which pressured margins.

French aerospace and defence company Safran slumped as it warned of softening growth in the wide-body jet market. London-listed engine maker Rolls-Royce also fell sharply.