Europe close: Stocks hit by rate worries, geopolitical concerns

European shares were in the red on Tuesday as upbeat data reignited worries about rate hikes and amid geopolitical tensions.

“US markets kicked off their shortened week with a fresh bout of losses, driving the Dow to the lowest level seen in almost four-weeks," said Josh Mahony, senior market analyst at IG.

"We have recently found ourselves back in a ‘good news is taken as bad news’ period for stocks, with today’s raft of improved PMI surveys across Europe and the US resulting in widespread selling on the premise of ‘higher for longer’ interest rates.

The pan-European Stoxx 600 index dipped 0.19% to 463.77, France’s CAC 40 was off by 0.37% at 7,308.65 and Germany’s DAX dropped 0.52% to 15,397.62.

A survey out earlier showed that business growth in the eurozone hit a nine-month high in February.

The S&P Global flash eurozone PMI composite output index rose to 52.3 from 50.3 in January, rising for the fourth month in a row and indicating the strongest expansion since last May. Economists had been expecting a reading of 50.6.

A reading above 50.0 signals expansion, while a reading below indicates contraction.

The flash eurozone services PMI activity index printed at 53.0 in February, up from January’s reading of 50.8 - an eight-month high. However, the manufacturing PMI dipped to 48.5 from 48.8.

Capital Economics said: "February’s chunky rise in the euro-zone Composite PMI suggests that the economy will grow in Q1. With the labour market still very tight and price pressures strong, the survey will reinforce ECB policymakers’ conviction that their tightening cycle still has some way to go."

Market participants were also mulling the latest survey from the ZEW Center for European Economic Research in Mannheim, which showed that German business sentiment improved in February.

The headline ZEW investor expectations index rose to 28.1 from 16.9 in January, coming in ahead of expectations for a reading of 22.0.

An index of current conditions improved to -45.1 in February from -58.6 the month before, ahead of expectations of -50.5.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: "EZ investor sentiment data are still turning up, consistent with continued low gas prices, and rising equity prices.

"These data are not always reliable indicators for conditions in the wider economy, but they are now pointing to a pick-up in economic activity and economic sentiment, primarily evidenced by the split between rising expectations and a still-depressed current conditions index. This is often an early indicator for better things to come in the EZ economy.

"On this occasion, however, it is also likely an indication that risks for ECB rate hikes are tilted to the upside, despite the consensus expectations of 75-to-100bp further hikes between now and June."

Investors were also digesting a speech by Russian President Vladimir Putin in which he doubled down on his war aims and said that his country would pull out from the new Strategic Arms Reduction Treaty.

Tensions were rising in the region following a report - denied by Beijing - that China might supply weapons to Moscow, sparking a warning of retaliation from the US administration.

In equity news, Credit Suisse slumped 3% following a report the Swiss financial regulator is reviewing remarks made by the bank’s chairman Axel Lehmann about outflows from the lender having stabilised in early December.

Global hotel chain operator IHG slipped despite posting a rise in annual profits aided by higher room prices and announcing a $750m share buyback as travel continued to rebound from the Covid pandemic.

Smith & Nephew dipped after reporting a fall in annual profits, while HSBC reversed earlier losses to trade up as it said quarterly profit surged 92% on rising global interest rates, but the bank was cautious on its outlook.

French energy company Engie rose after reporting a sharp increase in 2022 profits driven by higher gas and power prices.