European Stocks Climb as Investors Weigh Tech Resilience

By Anna Isaac

European stocks climbed Monday after wild swings in tech shares dragged markets lower last week. U.S. stock trading is closed for the Labor Day holiday.

The pan-continental Stoxx Europe 600 finished the day's trading up 1.7%. In the U.S., futures tied to the S&P 500 edged up 0.6%. Futures tied to the tech-heavy Nasdaq slipped 0.3%, after it on Friday posted its largest weekly decline since the week ending March 20.

The gains in Europe came as data on German industrial production showed a continued, but slowing, recovery. But concerns remained that the long-running tech rally which has driven major U.S. benchmarks to record highs, skewing indexes toward technology companies, might be coming to an end.

"We're getting a bit of a rotation out of the stay-at-home trade. That's boding well for the value and cyclical stocks," said Mark Haefele, chief investment officer at UBS Global Wealth Management. "It also should be good for Europe as while infections have risen a little bit, death rates are extremely low and people are starting to focus on the recovery."

Low interest rates, a weak outlook for inflation and the risk of a prolonged recession were also making it hard for strategists to plan for a shift downward in equity prices.

"We're exiting the exciting part of the recovery where you've had rapid growth for a short period of time," said James McCormick, a strategist at NatWest Markets. "As we reach the cruising altitude for the recovery we're going to find it a lot more worrying."

"If equities and credit do experience some downside where are you going to go? You've got record low yields, fixed income isn't going to provide that natural hedge anymore," Mr. McCormick said.

In Asia, the Shanghai Composite fell 1.9% and Japan's Nikkei 225 slipped 0.5%. Korea's Kospi was among the few risers in Asia, up 0.7%.

Shares in SoftBank Group slipped 7.2% in Tokyo after it was revealed that it was the investor behind a single trade which fueled the sharp rise and fall of tech stocks last week. This trade included a bet on options tied to around $50 billion worth of individual tech stocks.

Shares in Semiconductor Manufacturing International Corp., which is China's most advanced chip maker, fell as much as 24% in Hong Kong on Monday after the U.S. government said it was considering placing export restrictions on the company. The step would mark a major escalation in the Trump administration's crackdown on Chinese technology companies.

In Shanghai, where the company recently raised billions of dollars through a second listing to boost its production capacity, SMIC shares fell more than 9%.

In a day thin on data due to the U.S. holiday, China's exports continued their strong performance in August, as the continued global recovery boosted external demand. Exports rose 9.5% from a year earlier, following a 7.2% increase in July, the General Administration of Customs said Monday. Economists in a Wall Street Journal poll had expected 7.3% growth.

German industrial production increased for the third consecutive month in July, but its recovery lost steam, federal statistics office Destatis said Monday. Economists said the data suggested the German manufacturing sector was still far from a full recovery. Segments of the Stoxx Europe 600 most exposed to bets on industrials led gains in the region.

In currencies, the ICE Dollar Index, which tracks the dollar against a basket of major currencies, rose 0.4%. The British pound fell 0.9% against the dollar and 0.7% against the euro. News reports suggested a worsening risk the U.K. would exit a transition phase at the end of the year without striking a trade deal with its largest trading partner, the European Union. This, along with the prospect of potential tax hikes and rising coronavirus cases, weighed on sterling.

"The temperature in talks has risen overnight. The mood music was awful for the last few weeks and the market largely ignored it -- that's shifted. It seems like there is no optimism for a proper deal," said Jordan Rochester, currency analyst at Nomura bank. "I'm bearish on sterling, and I expect a weak pound to continue."

In commodities, global benchmark Brent crude fell 1.4% to $42.06 a barrel after state-oil giant Saudi Aramco on Saturday lowered pricing for oil it will sell to Asia and the U.S.

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