Europe close: Bank and oil stocks pace losses

European stocks reversed earlier gains to trade lower on Monday, with banks under the cosh as investors digested the results of the latest stress tests and oil stocks weighed down by a sharp drop in crude oil futures.

The benchmark Stoxx Europe 600 index finished 0.59% lower at 339,86, Germany’s DAX was flat, off by just 0.07% to 10,330.52 and France’s CAC 40 was down by 0.69% to 4,409.17.

At the same time, oil prices were in the red. West Texas Intermediate was off 3.896% at $40.04 a barrel and Brent crude was down by 3.59% lower at $42.02, sending the Stoxx 600 gauge of Oil&Gas stocks lower by 1.65% to 274.09.

Equity markets had kicked the session off in the black, with bank shares seemingly shrugging off the release of the European Banking Authority’s latest stress tests on Friday. However, by the close the Stoxx 600 sub-index for the sector was in the red by 1.64% to 131.01 points.

Italy’s Monte dei Paschi – which announced a €5bn recapitalisation just minutes before the stress test results were released – gained a bit ground despite faring the worst out of the 51 banks tested; analysts at Societe Generale said that with a rescue in place, the stress test was "something of an afterthought".

Barclays and Royal Bank of Scotland were both in the red, while UniCredit shares were temporarily suspended as investors rushed to ditch the stock. By the close of trading stock in the Italian lender had surrendered 9.40% to €1.99.

Despite the losses, SocGen said all the banks other than Monte performed “acceptably”.

Investors were also digesting mixed data out of China, where the official manufacturing purchasing managers’ index for July fell to 49.9 from 50.0 the month before. A reading below 50 indicates a contraction. Economists had been expecting a reading of 50.1.

However, the private PMI survey by Caixin/Markit came in at 50.6 in July from 48.6 in June, beating expectations.

Meanwhile, the official non-manufacturing PMI nudged up to 53.9 in July from 53.7 in June.

On the European data front, Markit’s final Eurozone manufacturing purchasing managers’ index nudged down to 52.0 in July from 52.8 in June.

Still, the reading came in above the flash estimate of 51.9 and marked the 37th consecutive month of expansion.

Chris Williamson, chief economist at Markit, said: “Although signalling an easing in the pace of expansion in July, the PMI points to steady manufacturing growth. The problem is that growth is looking increasingly lop-sided, which will worry policymakers and add to calls for further stimulus from the ECB.

“The surveys suggest that euro area factory output is expanding at a near-2% annual pace, which has encouraged firms to take on extra staff at the fastest rate for five years in recent months. Deflationary pressures are also easing, with costs showing the first rise for a year and selling prices stabilising.”

In corporate news, Heineken was in the red after the brewer’s first-half sales growth missed analysts’ expectations.

French industrial gas company Air Liquide was also on the back foot after saying net profit in the first half fell 4.5% to €811m.

Burberry was weaker after it said it has taken full control of its retail business in China.

On the upside, Veolia gained ground as the water and waste utility posted a drop in first-half profit and said it was selling the stake in its transport unit.

GlaxoSmithKline edged higher after announcing a new agreement with Verily Life Sciences - formerly Google Life Sciences, an Alphabet company - to form Galvani Bioelectronics.