Europe close: Shares close lower on China slowdown, rate hike fears

European stocks closed sharply lower on Monday as investors fretted about a slowdown in China in the face of a potential Covid lockdown in Beijing and faster US interest rate hikes - overshadowing pro-European French President Emmanuel Macron's election win.

The pan-European Stoxx 600 index finished the day down 1.8%. France's CAC 40 dropped 2% and Germany's DAX was down 1.5%, despite a survey showing German business sentiment unexpectedly strengthened in April.

The Ifo Business Climate Index rose to 91.8 points in April, from 90.8 in March. The current situation index rose only marginally, to 97.2 from 97.1, but the expectations index – which tumbled last month to 84.9 from 98.7 in February – rose to 86.7.

US shares showed no sign of rallying either, starting the day in negative territory with little optimistic news to encourage buyers. The tech-heavy Nasdaq was down 0.41% as investors awaited news on Elon Musk's planned takeover of social media platform Twitter.

“The markets have fallen out of bed in a big way on Monday after a big sell-off in Asia amid fears of a Covid lockdown in Beijing,” said AJ Bell investment director Russ Mould.

“The prospect of further restrictions in China could lead to a poisonous mix of further inflationary pressure, as supply chains in the so-called ‘factory of the world’ get disrupted, and weaker economic growth.

“The result could be stagflation – a slowing economy accompanied by surging prices – a brew few investors would be able to stomach. “Some inflation numbers are out at the end of this week in the US and could have an influence on the market’s mood as we head into May."

In France and across the Continent there was relief at Macron’s victory, signalling a commitment to a united Europe as the French electorate’s rejection of hard-right policies.

In equity news, shares in Russian gold miner Polymetal rose as the company reported a rise in first quarter revenues on higher metals prices.

Shares of Dutch health technology company Philips fell 11% as the firm reported a steep drop in first-quarter core profit due to a global shortage of parts and a massive recall of ventilators.

Miners were weaker on the back of lower metals prices, a stronger US dollar and the threat of declining Chinese demand, with BHP, Glencore, Anglo American, Rio Tinto and Antofagasta all lower.

Anglo American was also hit by a recommendation from a Chilean government environmental agency to block the extension of it Los Broncos copper project.

"It has been a tough day for minerals due to the demand fears surrounding China. Industrial metals such as silver, copper and palladium and all nursing heavy losses. It is a similar situation with WTI and Brent crude," said David Madden, market analyst at Equiti Capital.

"China is one of the largest importers of commodities in the world, so concerns about its growth prospects are hanging over the commodities. Gold is in the red on account of the bullish move in the US dollar – it registered a new two-year high."

French gaming group Ubisoft jumped 11.2% after a report on Friday said the company was attracting preliminary takeover interest from buyout funds.