Europe open: Stocks drop as rally runs out of steam

European stocks fell in early trade as the rally from the two previous sessions lost steam.

At 0850 BST, the benchmark Stoxx Europe 600 index was down 0.8%, Germany’s DAX was 0.6% weaker and France’s CAC 40 was off 0.9%.

In London, the FTSE 100 was 0.5% weaker while the more domestically-focused FTSE 250 was down 0.6%.

Lee Wild, head of equity strategy at Interactive Investor, said: “Bombed-out stocks look dirt cheap, equity yields beat other asset classes hands down, we know central banks will prop up markets, and investors are betting against any significant Brexit impact near-term. There's even an outside chance it may never happen.

“However, markets never move in straight line, and traders are banking profits Thursday as the second quarter comes to a close.”

At the same time, oil prices were in the red. West Texas Intermediate was down 1.4% at $49.17 a barrel and Brent crude was down 1.5% to $49.86.

In currency markets, the pound was steady against the dollar, up just 0.1% at $1.3452.

On the corporate front, Deutsche Bank and Banco Santander were under the cosh after it emerged late on Wednesday that they had failed US stress tests, according to the Federal Reserve.

Elsewhere, Legal & General nudged lower after saying it made £4bn of sales across bulk annuities, individual annuities and lifetime mortgages in the first half of the year.

On the upside, private equity firm 3i rallied as it said it had no plans to dispose of its investment in Dutch discount retailer Action despite a number of approaches.

Data out earlier from Destatis showed German retail sales rose more than expected in May.

Retail sales were up 0.9% on the month versus expectations of a 0.7% increase and a 0.3% decline in April.

On the year, retail sales pushed up 2.6%, which was below economists’ expectations of a 3% rise and down from an upwardly revised 2.7% gain in April.

Pantheon Macroeconomics said the headline was strong, “especially given the significant upward revisions of last month’s data, but it likely won’t be enough to present a sharp slowdown in Q2.

“Assuming sales were unchanged in June, which is a fair bet, the quarter-on-quarter rate would slump to a 0.6% fall in the second quarter, following a 0.3% increase in Q1. These data are much more volatile than the household consumption data, though, and we doubt the hit to GDP will be that bad.”

Still to come, investors will eye eurozone inflation at 1000 BST. In the US, initial jobless claims are at 1330 BST and Chicago PMI is at 1445 BST.