European Shares Retreat to Three-Week Low Following Robust 2023 Performance

On Wednesday, Europe’s benchmark stock index, the STOXX 600, dropped to a three-week low, testing the previous year’s market rally. The index was down 0.8% at 1310 GMT, having started the new year on a lackluster note the day before. Major European indexes in Germany, Italy, and France slid over 1%, reaching near one-month lows.

The financial services index declined 2.2%, heading for its most significant one-day slide since July, with UBS Group AG losing 3.1%. Other major sectors, including basic resources and construction and materials, dropped over 2%, hitting near three-week lows. Luxury giants LVMH, Kering, Hermes, and Richemont lost between 2% and 3.3%, with the broader sector shedding 2.3%, reaching its lowest level since late November.

Investors are closely watching the release of a key U.S. jobs report and minutes from the Federal Reserve’s December policy meeting to gauge global monetary policy cues. Expectations of interest rate cuts by the European Central Bank in 2024 had contributed to a 12.7% jump in the benchmark STOXX 600 in 2023.

Several factors, including any shocks in the timing of rate cuts and a further deterioration of the European economy, are identified as key triggers that could test the sustainability of the gains seen in European markets last year. Analysts anticipate that the European Central Bank might cut rates soon due to economic weakness, followed by the Bank of England and then the Federal Reserve.

In individual stocks, Ryanair faced a 4.6% decline after multiple online travel agents stopped selling its flights in early December. ASML, a computer chip equipment maker, fell 2.7% for the second consecutive day following the Dutch government’s partial revocation of an export license for some China shipments.

On the positive side, Maersk rose by 4% after Goldman Sachs upgraded the shipping company’s stock rating to “neutral” from “sell,” citing a boost from rising freight rates amid disruptions in the Red Sea. In the food and beverages sector, Nestle led gains with a 2.8% advance.

Healthcare stocks also enjoyed gains, with Swiss drugmakers Novartis and Roche jumping 3.7% and 2.8%, respectively. The overall market sentiment remains cautious, with investors closely monitoring central bank actions and economic indicators.