Europe open: Stocks in the red; Bayer, Fiat under pressure

European stocks fell in early trade as the prospect of a June rate hike by the Federal Reserve and disappointing Japanese trade data undermined sentiment.

At 0900 BST, the benchmark Stoxx Europe 600 index was down 0.7%, Germany’s DAX was off 1% and France’s CAC 40 was 1.1% weaker.

At the same time, oil prices retreated amid ongoing supply glut concerns. West Texas Intermediate was down 1.3% to $47.77 a barrel and Brent crude was 1% lower at $48.22.

“US interest rate speculation remains the favourite pastime in City dealing rooms as focus shifts from corporate earnings to data,” said Lee Wild, head of equity strategy at stockbroker Interactive Investor.

“It is inevitable that the ‘will they, won't they?’ debate about a June hike in US interest rates will rumble on right up until decision time. The hot money's on another pause, but the more data keeps telling policymakers the US economy is healthy, the greater the risk of a shock. However, it would be a brave Fed that raised rates just a week before the EU referendum and just months ahead of the US presidential election. A policy error now could have serious consequences, threatening both fragile economic growth and a fresh slump in commodity prices.”

The mood was also soured by data showing Japanese exports fell 10.1% on the year in April, in line with forecasts but a much weaker performance than March’s 6.8% drop. Imports slumped 23%, missing expectations for a 19% decline.

In corporate news, lost-cost carrier Ryanair edged higher after reporting a 43% jump in full-year net profit but cautioning that profit growth for this year is likely to be modest.

Legal & General was touch lower after announcing the acquisition of a £3bn annuity portfolio from Aegon.

German drugs company Bayer was under the cosh after making a $62bn bid for US agriculture group Monsanto.

French Insurer AXA was a little weaker after it announced plans to sell all its exposure to tobacco companies, valued at approximately €1.8bn.

Italian-American car maker Fiat Chrysler was also in the red following a press report the German regulator suspects it used illegal software to cheat emissions tests.

On the economic front, Markit’s composite purchasing managers’ index for Germany rose to a five-month high of 54.7 in May from 53.6 in April, beating economists’ expectations for a reading of 53.8.

The manufacturing PMI increased to a five-month high of 52.4 from 51.8, surpassing expectations of 52.0, while the services PMI edged up to a three-month high of 55.2 from 54.5 in April, ahead of estimates of 54.6.