Europe close: Luxury, commodity stocks drop as China concerns hit markets

European stocks pared losses slightly by the close after a positive start on Wall Street but remained firmly in the red, with heavy falls in the drinks, luxury and commodities sectors dragging indices into the red.

The Stoxx 600 finished the day down 0.55% at 516.65, with a small gain in Madrid (0.2%) offset by moderate losses in Frankfurt and Milan (both down 0.2%) and a sell-off in London (down 1.4%).

"Financial markets are mostly in a risk-off mood on Tuesday, as China has stopped its drip feed of stimulus, commodity prices fall, Middle East tensions continue to rage and the surge in US Treasury yields starts to worry investors," said Kathleen Brooks, research director at XTB.

China’s National Development and Reform Commission underwhelmed after failing to deliver more stimulus measures at their conference, causing stocks with heavy exposure to China to drop.

Markets in mainland China rose strongly as as traders returned to their desks following the Golden Week break, while the Hang Seng index in Hong Kong – which stayed open during the week-long holiday – tumbled 9.4%.

Oil prices were pulling back on Tuesday after surging to a six-week high the previous session. Brent was down 4.4% at $77.40 a barrel, after topping the $80 mark on Monday on the back of supply concerns amid another escalation of conflict in the Middle East.

In economic news, German industrial production increased more than expected in August, driven by a “significant” jump in the auto industry, according to official data published on Tuesday. Production was up 2.9% month on month, the federal statistics office Destatis said. Analysts had expected a 0.8% rise.

Vistry plummets in London

Vistry was the heaviest faller of the day, dropping 24% as the housebuilder warned on profits after underestimating build costs on nine schemes in its Southern Division. The company now expects FY24 adjusted pre-tax profit to be £80m lower, while profit for FY25 will take a hit of around £30m and £5m for FY26.

Shares of European drinks makers Remy Cointreau, Pernod Ricard and Diageo slumped after China said it would impose provisional anti-dumping tariffs on brandy imported from the European Union this week. According to a notice from the Ministry of Commerce, Chinese customs officials will collect security deposits from companies that sell brandy that originates from the EU. The deposit amount will be between 30.6% to 39% of the total value.

China was also weighing on stocks in the luxury and mining sectors over fears over reduced demand. Burberry, Kering, Swatch Group, Antogasta, Rio Tinto and Anglo American were all trading with heavy losses. Meanwhile, banking giant HSBC, which has heavy exposure to the region, was down nearly 4% in London.

Also weighing on the luxury sector were comments from JPMorgan, which told investors not to get their hopes up ahead of third-quarter earnings season. The bank said earnings season will likely confirm "muted trends" for luxury brands, with growth broadly in line with the second quarter despite easing comparatives.

Oil stocks were also firmly out of favour, notably BP, Shell, TotalEnergies and Repsol, following crude prices lower.

One bright spark was UK-listed cigarette and vape maker Imperial, rising 4% after beefing up its shareholder returns programme by £400m as it confirmed full-year results would be in line with expectations.