European stocks rise despite China fears, Volkswagen up 4%
European stocks were trading higher on Wednesday in what has been a choppy morning of trade amid renewed fears over the health of the Chinese economy and continued fallout from the Volkswagen emissions scandal.
The pan-European STOXX 600 was up was around 0.6 percent higher.
London’s FTSE 100 traded up 1.1 percent while the French CAC was 0.8 percent higher.
The German DAX rose around 0.8 percent despite Deutsche Bank cutting its target levels for the index.
In Asia, equities slid deeper into the red on Wednesday, after a preliminary reading of activity in China’s mammoth manufacturing sector fell to a six-and-a-half-year low of 47.0 in September, rekindling worries over the world’s second-largest economy.
The downbeat sentiment persisted even as Chinese President Xi Jinping defended his country’s growth pace and reassured the world that China‘s financial markets will remain stable in his first policy address during a state visit to the U.S.
VW scandal to hit German GDP?
In corporate news, German carmaker Volkswagen continues to dominate market talk after its shares fell another 20 percent on Tuesday, adding to the previous day’s losses. Chief executive Martin Winterkorn is under increasing pressure due to the scandal – the carmaker is accused of falsifying emission tests and VW said 11 million cars could be affected. Shares in the carmaker were down 5.6 percent on Wednesday but was trading 4 percent higher as bargain hunters flocked to the stock.
Related article: VW scandal: what the emissions revelations mean
Michael Hewson, chief market analyst at CMC Markets, said that with one in six German jobs depending on the car industry in some way, the fallout from the VW scandal could hit the country’s economic growth.
“Of all the factors that we saw yesterday the one that is most likely to be a particular worry is the spill over effects this drama surrounding Volkswagen will have on the wider German economy in the weeks and months ahead at a time when their appears to be some evidence that growth may well be slowing in the euro area,” Hewson said in a note on Wednesday.
As a result of the crisis. VW stock Wednesday received a series of downgrades from the likes of Deutsche Bank and JPMorgan.
“We now rate VW Neutral (OW) with a new December 2016 target price of €179 (from €253), as we lack clarity on the potential total cost of the recall and the risk of additional engine investigations,” JPMorgan wrote in a note on Wednesday.
At the same time, French investment bank Societe Generale downgraded the European automobile sector from “overweight” to “neutral” amid the emissions scandal, sending the STOXX 600 autos sector down 1 percent.
“After Volkswagen admitted that 11 million vehicles around the world had been fitted with a device designed to cheat emissions tests, investors are likely to stay away from the automobile sector for a while (as they could be wondering which company might be next),” SocGen wrote in a note on Wednesday.
France’s Peugeot Citroen and Renault however, were both in negative territory.
Other stocks to watch
Meanwhile, British alcoholic drinks maker Diageo said in a trading statement that it had started the year well with performance in line with its expectations. Volume has grown mid-single digit, especially in the U.S. spirits segment, the firm added. Shares in the company were 0.7percent higher.
U.K. engineering firm Smiths Group reported a 2 percent year-over-year decline in revenues but a 1 percent tick up in operating profit for the year ending 31 July. The company also said that chief executive Philip Bowman will step down as CEO on September 24. The news sent shares in the British firm up 3.1 percent.
The STOXX 600 basic resource sector was performing well with London-listed Glencore and Anglo American up over 2.2 percent. A number of brokers raised their outlook on Glencore’s stock with Bernstein calling the recent falling price “overdone”.
British aircraft services provider BBA Aviation saw shares fall over 2 percent after it said it had proposed to acquire Landmark Aviation for $2.065 billion.
Shares in healthcare firm Coloplast fell over 6.7 percent after it took a further $448 million charge as part of a U.S. lawsuit.
Data in focus
On the data front, a final reading of French second-quarter gross domestic product (GDP) came in unchanged 0.0 percent as the country failed to grow from the previous quarter. But France’s manufacturing Flash purchasing manager’s indices (PMI).
German September flash composite PMI came in at 54.3, slightly down from August’s 55.0 figure, but still above the 50.0 level which separates growth from contraction.
Euro zone September flash composite PMI came in at 53.9, below August’s 54.3 figure.
In Europe, EU ministers approved a plan on Tuesday to share out 120,000 refugees across its 28 member states, overriding opposition from four ex-communist eastern countries. On Wednesday, EU leaders are meeting for an extraordinary, informal summit to discuss how to deal with the refugee crisis.
In Greece, newly re-elected Prime Minister Alexis Tsipras appointed two bailout negotiators to head his economic team on Tuesday, Reuters reported, in a move to assure lenders that the new government will not backtrack on its cash-for-reform deal.
Source: CNBC – European stocks rise despite China fears, Volkswagen up 4%
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