European shares open lower on China growth fears

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European stocks followed Asia lower on Wednesday after fresh data from China underlined the challenges facing the world’s second-largest economy as its post-pandemic rebound fizzles.

Europe’s region-wide Stoxx 600 lost 0.4 per cent at the opening bell, with real estate stocks leading declines across the board, while France’s Cac 40 slipped 0.3 per cent and Germany’s Dax fell 0.7 per cent.

The declines echoed Asian markets, where investors grew cautious after data pointed to China’s services sector activity expanding slower than expected in June, adding to signs that the economy struggled to recover after three years of severe Covid-19 restrictions.

The closely watched Caixin services purchasing managers’ index came in at 53.9 on Wednesday, down from 57.1 for May and below consensus estimates of 56.2. Readings above 50 indicate an expansion in activity.

“The services sector recovery appears to be slowing, after the initial strong burst of growth immediately after China dropped zero-Covid policy,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.

“This warrants a measured easing approach but not a mega stimulus. Limited fiscal, quasi-fiscal and targeted monetary policy measures are likely to follow,” he noted.

The People’s Bank of China last month cut its benchmark lending rates for the first time in almost a year, as policymakers extended cautious monetary support in an effort to spur more robust growth.

China’s CSI 300 dropped 0.8 per cent and Hong Kong’s Hang Seng index lost 1.4 per cent following the data release. Japan’s Topix was flat.

Meanwhile, contracts tracking Wall Street’s benchmark S&P 500 lost 0.2 per cent, and those tracking the tech-focused Nasdaq 100 lost 0.4 per cent, as traders prepared for US markets to reopen after the Independence Day holiday.

Investors awaited minutes from the June meeting of the Federal Open Market Committee, released later on Wednesday, for further insights into the US central bank’s outlook on interest rates.

Oil prices were mixed after rising steadily in the previous session, spurred by the announcement that two of the world’s top producers, Saudi Arabia and Russia, planned to cut supply in August.

Brent crude, the international benchmark, gave back some gains, dropping 0.4 per cent to $75.94 per barrel. However, West Texas Intermediate, which is based on US oil prices, rose 1.8 per cent to $71.05.