European shares join global selloff on growth worries

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(Reuters) -European shares fell on Tuesday, tracking declines in global stock markets with business expansion data for May renewing investor concerns over slowing economic growth and monetary policy tightening.

The pan-European STOXX 60 index slumped 0.8% by 0818 GMT, giving back a chunk of Monday’s 1.3% rally.

Euro zone business growth slowed this month and a shortage of raw materials held back expansion in manufacturing, according to the preliminary Purchasing Managers’ Index data. This added to worries over global growth as data earlier showed Japanese manufacturing expanded at the slowest pace in three months.

Europe’s largest economy, Germany, meanwhile, remains on the growth path helped by a sustained rebound in services, although demand outlook looks bleak amid inflation and supply issues.

German shares gave up 0.8%.

“The clouds are packing above the eurozone economy,” said Bert Colijn, senior economist, Eurozone at ING. “And the question is really how long the service sector can continue to profit from consumers… when we also see that purchasing power is under extreme pressure due to high inflation.”

“Inflationary pressures are barely abating and… this is a warning that it is likely to remain quite hawkish for the European Central Bank,” he said, signalling a period of sustained pressure for stocks.

All major sectors posted broad declines, with utilities in the lead. Consumer discretionary stocks such as luxury names, which take a hit when disposable income is squeezed, were the biggest drags on the STOXX 600.

The French index, packed with luxury stocks, slumped over 1%, the top decliner among regional peers.

Asian markets fell, while U.S. stock futures dropped sharply with Snapchat-owner Snap Inc (NYSE:SNAP) seen weighing after a profit warning. Frankfurt-listed shares of Snap plunged 35%.

The STOXX 600 is now down more than 12% from this year’s highs hit in early January.

Worries about monetary policy tightening to control surging inflation, the Russia-Ukraine conflict and COVID-19 curbs in China restricting demand in the world’s second-largest economy have all weighed on markets. Europe’s volatility index scaled two-year highs in March.

Among individual stocks, Norwegian advertising firm Adevinta rose 4.7% on posting a higher-than-forecast first-quarter core profit.

Tele2 plunged 7.8% after investment company Kinnevik sold a 7.2% stake in the telecoms operator.

Barclays (LON:BARC) rose 2% on starting a suspended 1-billion-pound share buyback programme.

Shares of UK power generating companies Drax, Centrica (OTC:CPYYY) and SSE (LON:SSE) plunged between 7.9% and 16% after the Financial Times reported that the British government could extend the windfall tax to power generators.