Europe close: Stoxx 600 hits three-month low on China, US tariff fears

European stocks fell sharply on Tuesday to a three-month low as a gloomy German sentiment survey and ongoing concerns about US tariff concerns triggered a sell-off.

The Stoxx 600 dropped 2% to 502.23, its lowest closing level since 13 August, with losses of 2% or more seen across Frankfurt, Paris and Milan.

While US stocks have rallied following Donald Trump's election victory last week – with all three Wall Street benchmarks hitting record highs on Monday before pulling back slightly in early deals – traders in Europe and Asia have taken profits after looking more closely at the possible impact of potential tariffs against China as promised by the president-elect.

"The moves come as investors continue to respond to the disappointing fiscal stimulus announced last week by China’s standing committee of the National People’s Congress (NPC). On top of that, there’s now the prospect of a huge rise in tariffs, both in size and scope, on exports to the US as threatened by president-elect Donald Trump," said David Morrison, senior market analyst at Trade Nation.

Closer to home, economic data revealed that wage growth in the UK slowed in the three months to September, but not as much as expected, according to official data. Employee pay excluding bonuses rose 4.8% over the quarter, its lowest rate in more than two years. Meanwhile the unemployment rate rose to 4.3% in the three months to September from 4% in the previous quarter, versus expectations for a 4.1% increase.

German business sentiment deteriorated in November, according to a survey by the ZEW Center for European Economic Research in Mannheim. The headline ZEW investor expectations index fell to 7.4 from 13.1 in October, coming in just below expectations for a reading of 13.0. Meanwhile, the current conditions index fell 4.5 points from October to -91.4 in November.

Also in Germany, inflation was confirmed as rising to 2% in October from September’s 1.6%, driven by higher food and services prices.

Market movers

Mining and luxury stocks were firmly out of favour on Tuesday as investor sentiment in these industries continues to be weighed down by concerns surrounding China. Anglo American, Rio Tinto, Glencore, Kering, Hermes, Burberry and Estee Lauder were notable fallers.

Shares in ConvaTec surged as the wound care specialist raised its guidance for 2024 following robust sales growth across its divisions.

BAE Systems rose as the arms maker held annual guidance and said its order book reflected demand from governments for weaponry amid increasing global tensions. The company said it expected to hit its upgraded underlying operating earnings growth target of 12 -14% this year on 2023's £2.7bn.

DCC shot higher as it announced plans to simplify its operations and focus on the energy sector. The sales, marketing and support services group also reported a rise in interim profit and lifted its dividend.

On the downside, shares in Bayer slumped as the German chemicals group lowered full-year operating earnings guidance and took billions in write-downs on agricultural markets in Latin America.

Direct Line was knocked lower by a downgrade to ‘hold’ from ‘buy’ by Jefferies, which cut its price target to 165p from 235p. The insurer on Monday said it was axing 550 staff in an effort to cut costs.