Europe close: Stocks edge lower, oil retreats after last week´s surge

European stocks edged lower on Monday, led by losses in the Eurozone´s periphery, against a backdrop of renewed oil price drops.

The benchmark DJ Stoxx Europe 600 index was down 0.62%, while France’s CAC 40 retreated 0.58% and Germany’s DAX by another 0.29%.

Things were worse out on the periphery, with the Ibex 35 sporting losses of 1.78% and the FTSE Mibtel losing 2.03%.

A softer-than-expected reading on German business confidence also served to dampen market sentiment.

“Markets have started the week tentatively, with European equities following oil prices lower, giving up some of the gains seen late last week. The correlation between oil and equities remains a key driver for markets as investors expect lower oil prices to force sovereign wealth funds to divest rather than invest,” said Rebecca O’Keeffe, head of investment at Interactive Investor.

Markets rallied at the end of last week after European Central Bank chief Mario Draghi hinted that further stimulus was on the cards.

As a result, investors will be paying close attention to the Federal Reserve rate decision on Wednesday, as well as the Bank of Japan’s monetary policy statement on Friday.

Energy shares were among the worst performers, with the DJ Stoxx 600 oil and gas index down 1.18% as West Texas Intermediate fell 5.51% to $30.51 a barrel and Brent crude dropped 4.7% to $30.75.

Crude oil futures were weaker from the start of the session, possibly on th eback of profit-taking after the large rebound seen at the end of the prior week.

However, remarks from Saudi Aramco chairman Khalid al-Fatih that his country would maintain its investment plans and figures showing a 5.6% drop in Chinese diesel use in December were seen by some as the reason behind Monday´s decline in prices.

In corporate news, 3i drifted lower in London following upbeat research notes from Societe Generale and Barclays.

B&Q owner Kingfisher was in the red after announcing a five-year transformation plan aiming to deliver a £500m sustainable annual profit uplift by the end of the programme.

Stock in Siemens lost 1.48% following a media report the industrial group has agreed to buy privately-held US engineering software firm CD-adapco for close to $1bn in cash.

Lloyds Banking Group was under pressure after JPMorgan cut its price target on the stock.

BT Group was also under the cosh as MPs called on the company to spin off its broadbank network.

On the data front, investors were left digesting a weaker-than-expected reading on German business confidence for January.

German research institute Ifo’s business climate index fell to a seasonally-adjusted 107.3 from 108.6 the previous month and below the 108.4 reading expected by economists.

Meanwhile, the current assessment index printed at 112.5 compared with 112.8 in December and missing expectations for a reading of 112.8.

The expectations index slid to 102.4 from 104.6 the previous month, falling short of expectations for 104.1.

SpreadCo analyst David Morrison said: “It’s a disappointment, undershooting the consensus expectation by more than a full point and also the lowest reading since this time last year.

“However, coming hard on the heels of last week’s dovish ECB statement, it does lift hopes that the central bank will announce further stimulus at its next meeting in March.”