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European Equity Benchmarks Close Sharply Lower; Eurozone Manufacturing Contraction Extends to 10 Months

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Last updated: 12/02/2019 12:54:53

12:54 PM EST, 12/02/2019 (MT Newswires) -- The broad-based major European indices closed sharply lower in Monday trading with the DAX and CAC tumbling by more than 2% each to start the week.

In economic news, euro area manufacturing continued to contract in November, albeit at the slowest rate in three months, as the IHS Markit Eurozone Manufacturing PMI rose to 46.9 in November from 45.9 in October, and above the flash reading of 46.6. Despite the improvement, the PMI remained well below the 50.0 no-change mark and extended the current period of contraction to 10 months.

Of the eight countries covered by the survey, only Greece and France reported manufacturing expansion on a month-on-month basis in November. Despite recording its best PMI reading in five months Germany remained bottom of the table, while Austria and Spain were the next worst performing, and recorded weaker rates of contraction, while Italy registered its lowest PMI in eight months. The Netherlands saw its first contraction since June 2013.

IHS said a reduction in new work in November maintained a run of contraction that began in October 2018. It also said a similar trend was seen for new export orders, which fell for the 14th straight month, although at its weakest pace since June.

"A further steep drop in manufacturing output in November means the goods-producing sector is likely to have acted as a major drag on the eurozone economy again in the closing quarter of 2019," said Chris Williamson, IHS Markit's chief business economist. "Although still signaling a steep rate of decline, the manufacturing PMI nonetheless brings some encouraging signals, which will fuel speculation that the worst is over for euro area producers, barring any new set-backs (notably in relation to Brexit and trade wars)."

Williamson added that "perhaps most promising is a marked upturn in business sentiment, particularly in Germany, with optimism about production in the year ahead hitting a five-month high in November."

Meanwhile, the manufacturing downturn in the UK continued in November as businesses responded to the Brexit delay as well as the added uncertainty from the upcoming general election as the seasonally adjusted IHS Markit/CIPS PMI Index dropped to 48.9 in November from 49.6 in October, but above the flash estimate of 48.3. The PMI has remained below the neutral mark of 50.0 for seven consecutive months.

Output, new orders and employment fell, while destocking activity resumed as firms depleted buffers built-up in advance of the postponed exit date. New orders fell for the seventh month in a row during November, reflecting tougher conditions in domestic and overseas markets. The decline in new export orders was among the sharpest seen in the past seven years. Manufacturing employment fell for the eighth straight month, with the pace of job losses the steepest since September 2012.

"November saw UK manufacturers squeezed between a rock and hard place, as the uncertainty created by a further delay to Brexit was accompanied by growing paralysis ahead of the forthcoming general election," said Rob Dobson, director at IHS Markit. "The pace of job losses also hit a seven-year high as firms sought to reduce overheads in the face of falling sales. Inflationary pressures meanwhile showed signs of moderating further, with input costs falling slightly for the first time since March 2016."

In equities, online supermarket Ocado Group and luxury goods company Burberry led the FTSE lower in London shedding 7.4% and 4.7% respectively, followed by real estate investment trust Segro, travel company TUI, and telecommunications operator Vodafone, which fell 3.5%, 3.4%, and 3.3% respectively. Financial services firm Hargreaves Lansdown and health care company NMC Health each dropped 2.6% while software firm Sage Group and aerospace company Meggitt each closed 2.3% lower.

In Frankfurt, electricity and natural gas provider RWE led the DAX into negative territory falling 5.4%, followed by industrial gases company Linde and software firm SAP, which lost 3.5% and 3.3% respectively. Internet company Wirecard and clothing and footwear company Adidas were down 3.1% and 2.7%, while aircraft engine maker MTU Aero and automaker Daimler each closed 2.6% lower.

And in Paris, telecommunications operator Orange and eyewear maker EssilorLuxottica led the CAC lower dropping 4.1% and 3.3% respectively, followed by industrial gases company Air Liquide and IT and consulting firm Cap Gemini, which were off 2.8% each. Airplane maker Airbus,cosmetics company L'Oreal, and alcoholic beverage company Pernod Ricard each fell 2.7%, while luxury goods company Louis Vuitton and aerospace company Thales each closed 2.6% lower.

The FTSE lost 0.82%, the DAX dropped 2.05%, and the CAC-40 fell 2.01%.

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