Europe close: Airbus woes and political uncertainty weigh on market
Heavy falls from Airbus and the rest of the aerospace sector hit stock markets across Europe on Tuesday, while growing uncertainty ahead of next week's first round of snap elections in France kept a lid on risk appetite.
Airbus finished the day down nearly 10% in Paris, dropping to its lowest levels of the year, after cutting its full-year earnings targets as a result of a "degraded operating environment".
"'Bad news from aerospace firm Airbus hit European markets, knocking these back after a solid start to the week yesterday", said Axel Rudolph, senior market analyst at IG.
The Dax dropped 0.8% – with Frankfurt-listed shares of biopharma group Merck weighing heavily – while the Cac 40, Ibex 35, FTSE 100 and FTSE MIB all fell around 0.4-0.6%.
Nevertheless, the Stoxx 600 index finished the day down a lesser 0.2% with decent gains in the wider pharma and biotech sectors limiting falls.
In France, the final week of campaigning began before the first round of voting in snap elections, as president Emmanuel Macro promised "profound" change if he is re-elected leader.
Even the head of Euronext said in an interview that the French elections were causing investors concerns. "If a team that has never governed comes to power, there is total uncertainty, a complete unknown," said chief executive Stephane Boujnah in a radio interview.
Economic data was thin on the ground on Tuesday, with revisions to first-quarter GDP in Spain the only notable release. The economy expanded by 0.8% in the first three months of 2024, up from the initial estimate of 0.7% and the 0.7% growth seen in the fourth quarter – marking the strongest quarterly growth in nearly two years. The annual growth rate was also revised 10 basis points higher to 2.5%.
Airbus and Merck tank
Airbus was out of favour after revealing it would only deliver around 700 aircraft this year, compared with previous guidance of 800. Annual EBITDA is now expected to be €5.5bn, down from earlier guidance of €7bn.
Aerospace and engineering firms were all in the red in Europe, with MTU Aero Engines, Melrose, Rolls-Royce, SAFRAN, Trelleborg and Dassault Aviation all falling sharply.
Sentiment was weighed down further by news concerning American peer Boeing, due to issues with a Korean Air flight at the weekend as well as the potential risk for criminal charges relating to two fatal crashes in 2018 and 2019.
"It is tempting to think that life will be simpler if your biggest rival is a terrible mess and Boeing’s woes are a potential boon for Airbus. However, the European firm is encountering some turbulence of its own and that is having a knock-on effect upon the companies that form part of its supply chain," said Dan Coatsworth, investment analyst at AJ Bell.
Merck plummeted 6% after the biopharma group called time on a cancer drug trial of lack of efficacy. The company stopped its trial of head and neck cancer treatment xevinapant, marking "another surprising setback for the healthcare pipeline", according to analysts at Barclays.
Despite Merck's fall, pharma and biotech companies fared well on Tuesday, dominating the risers list on the Stoxx 600. Zealand Pharma, Argenx, Eurofins Scientific, Novo Nordisk and Evotec were all rising strongly.
Admiral was a standout performer in London after Berenberg upgraded the insurer to ‘buy’ from ‘hold’ and lifted the price target to 3,127p from 2,973p, citing an attractive valuation.