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Europe midday: Stocks undermined as German industry stalls amid talk of 'recession'

Fri 07 February 2020 12:30 | A A A

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(Sharecast News) - Stocks on the Continent were trading slightly lower as traders waited on the all-important monthly non-farm US payrolls figures later in the day and digested the biggest drop in German industrial production since the global financial crisis, triggering renewed talk of a possible recession.

In the background, investors were still trying to count the cost from the Wuhan virus.

Strikingly, Chinese foreign trade data that had been scheduled for release overnight was not published as a result of the disruptions inflicted by the coronavirus, even as Toyota Motor and key Apple supplier, Hon Hai Precision Industry, extended shutdowns.

"Profit-taking appears to be taking hold ahead of today's US jobs report, with the uncertainty of the weekend spread of coronavirus adding another unknown that will push traders to sit on the sidelines until Monday," said IG's Chris Beauchamp.

Some strategists remained very cautious, with those at UniCredit telling clients: "We consider the strong relief of the last few days to be exaggerated and continue to recommend a cautious and defensive allocation."

As of 1316 GMT, the benchmark Stoxx 600 was down 0.36% at 423.94, alongside a 0.55% drop for the German Dax to 13,500.90, while the FTSE Mibtel was registering a 0.15% dip to 24,450.73.

Shares of Nokia were at the top of leaderboard after the Finnish telecommunications equipment maker posted fourth quarter free cash flow of €1.4bn.

The company told shareholders that it would focus on Mobile Access and cash generation in 2020, even as it touted "momentum" in 5G deals.

Shares of Ericsson were also moving higher, after the US Attorney General said that Washington and its allies should mull taking stakes in it or Nokia in order to ward off Huawei Technologies.

Going the other way, aluminium producer Norsk Hydro plummeted after revealing a fourth quarter loss before interest and taxes of, and on a reported basis, of 399.0m NOK, versus a 178.0m NOK profit in the comparable year earlier period.

German arquitecture software maker Nemetschek was dragged down by official data showing what some economists termed a 8.7% month-on-month "crash" in construction output in its main market in December.

Nonetheless, stock in Nemetschek remained but a stone's throw away from their record highs.

NMC Health and Umicore were also among the biggest fallers.

Swiss investment bank Credit Suisse was also in the headlines, after its chief executive officer, Tidjane Thiam, was unexpectedly ousted from the post following a boardroom battle with chairman Urs Rohner and despite the protests from several top shareholders.

The latest batch of economic data of the euro area made for sombre reading, with industrial production in France and Germany undershooting economists' forecasts by a wide margin, but Spain less so.

According to the Federal Office of Statistics, in month-on-month terms, German industrial output crashed 3.5% in December (consensus: -0.2%), led by a 8.7% drop in construction alongside a 3.5% slump in the production of capital goods, with total output down by an outsized 1.9% quarter-on-quarter.

French output meanwhile skidded 2.8% lower versus November (consensus: -0.3%), although for the quarter the pace of contraction did slow to -0.6% after the third quarter's 1.1% fall.

In remarks to Europe 1 Radio, French central bank governor, Francois Villeroy de Galhau linked the drop in output to the strikes during the month, which he said had weighed on the pace of inventory accumulation.

Further afield, Russia's central bank cut its key lending rate from 6.25% to 6.0%, as anticipated by analysts.

As an aside, and regarding the likely toll that the 2019 n-COV coronavirus might take, Mark Wall at Deutsche Bank was telling clients: "The spread of the virus is showing signs of peaking but the outbreak is expected to have had a sharp impact on China economic activity already in Q1.

"A lesser economic shock is expected to be transmitted to the broader Asia economy including Japan. A more moderate shock should be felt in the US and Europe. The assumption is that the virus peaks in February and economic activity will recover over the remainder of the year and into 2021."

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