Europe close: Drop in chemicals stocks, oil prices weighs on shares

European stocks ended lower in choppy trading, with a drop in shares of German chemicals-maker Bayer and falling crude oil futures prices acting as a drag.

Investors were also weighing up some encouraging German data against the possibility of a June rate hike by the US central bank.

The benchmark Stoxx Europe 600 index finished down 0.39% at 336.69 points, with Germany’s DAX giving back 0.74% or 73.73 points to end at 9,842.29 and France’s CAC 40 moving 0.66% or 28.80 points lower to 4,325.10.

The Stoxx 600 sub-index of chemical companies retreated 1.52% or 11.45 points to close at 741.18 while a gauge of Oil&Gas stocks dropped 1.10% or 3.00 points to 269.42.

Oil prices retreated amid ongoing supply glut concerns as Iran said it had no plans to freeze production. West Texas Intermediate was down 1.36% to $47.76 a barrel and Brent crude was 1.56% lower at $47.97 by the close of trading.

The session had kicked off in the red after data showed Japanese exports fell 10.1% on the year in April, in line with forecasts but a much weaker performance than March’s 6.8% drop. Imports slumped 23%, missing expectations for a 19% decline.

Investors were also busy digesting comments from St Louis Federal Reserve President James Bullard, who said in a speech in Beijing that a tight labour market in the US could put pressure on inflation, in turn underpinning the argument for higher interest rates.

Also on Monday, Fed Reserve Bank of San Francisco President John Williams said it was likely the Federal Reserve would hike rates two or three times in 2016.

Philadelphia Fed President Patrick Harker was due to speak later in the day and his remarks would also be closely scrutinised.

JP Morgan´s Mislav Mateka cautioned that the US central bank´s reaction function was acting as a dampener on equities, as evidenced by the price action seen in stockmarkets in the previous week.

On the one hand, "somewhat better data flow" led to the Federal Reserve opening the door to interest rate hikes. In turn, that boosts the value of the US dollar and places renewed pressure on the Chinese yuan.

However, any spell of weakness in the data automatically throws into question the ability of companies to deliver earnings in a sustainable manner, the strategist said in a research report sent to clients.

Data point to solid growth in Germany, slowdown in Spain

On the economic front, Markit’s flash composite purchasing managers’ index for Germany rose to a five-month high of 54.7 in May from 53.6 in April, beating economists’ expectations for a reading of 53.8.

The manufacturing PMI increased to a five-month high of 52.4 from 51.8, surpassing expectations of 52.0, while the services PMI edged up to a three-month high of 55.2 from 54.5 in April, ahead of estimates of 54.6.

"Overall, the [data] shows that the PMI points to solid GDP growth in Germany, but it also suggest that the 0.7 quarter-on-quarter growth rate in Q1 will not be sustained," Pantheon Macroeconomics said.

The flash Eurozone composite purchasing managers’ index slipped to a 16-month low of 52.9 in May from 53.0 in April, missing expectations for a reading of 53.2.

The services PMI was unchanged at 53.1, undershooting forecasts of 53.3.

Meanwhile, the manufacturing PMI dipped to a three-month low of 51.5 from 51.7 in April, missing estimates of 51.9.

Pantheon Macroeconomics said a weaker performance in Spain was likely behind the weak print in the euro area composite PMI.

RyanAir gains, Bayer drops

In corporate news, lost-cost carrier Ryanair edged higher after reporting a 43% jump in full-year net profit but cautioning that profit growth for this year is likely to be modest.

Legal & General was touch lower after announcing the acquisition of a £3bn annuity portfolio from Aegon.

German drugs company Bayer was under the cosh after making a $62bn bid for US agriculture group Monsanto.

French Insurer AXA was a little weaker after it announced plans to sell all its exposure to tobacco companies, valued at approximately €1.8bn.

Italian-American car maker Fiat Chrysler was also in the red following a press report the German regulator suspects it used illegal software to cheat emissions tests.