Europe close: Shares start 2H on a mixed note

European shares started the second half of 2023 on a mixed note - but after a strong showing in the first six months of the year - amid more proof that China’s economic recovery was stalling and a steeper contraction in eurozone manufacturing activity.

The pan-European Stoxx 600 index drifted lower by 0.21% to 460.98, alongside declines of 0.41% to 16,081.04 for the German Dax and a 0.18% dip for the French Cac-40 to 7,386.70.

In a research note sent to clients, strategists at J.P. Morgan predicted that services purchasing managers' surveys would shift down towards factory PMIs in the back half of the year - as flagged by the drop in M1 money aggregates.

"The market needs to resolve a basic

disconnect: how will the Fed pivot if there is no pain?," they said.

Indeed, cyclical shares' 20% outperformance versus defensives year-to-date reminded them of 2007, when factory activity was similarly weak and it was believed that the Fed needed to do more.

Against that backdrop, overnight it was reported China’s manufacturing sector slowed in June.

The Caixin/S&P Global manufacturing purchasing managers’ index fell to 50.5 from 50.9 in May, although this was above consensus expectations for a reading of 50.0.

It was followed by data showing that Eurozone manufacturing activity contracted faster in June than a flash estimate in response to the European Central Bank's tightening of monetary policy, which in turn squeezed access to finance, according to a survey published on Monday.

The S&P Global final manufacturing Purchasing Managers’ Index (PMI) fell to 43.4 from May’s 44.8, its lowest since the Covid pandemic was cementing its grip on the world, below a preliminary reading of 43.6.

A mark of 50 separates growth from contraction.

In equity news, shares in Generali were up 5% after Delfin was authorized to hold a more-than 10% stake in Italy's biggest insurer.