European stocks erased their early gains on Tuesday, extending losses from the previous session to reach a one-month low, as concerns over a slowing US economy overshadowed optimism surrounding increased public spending by Eurozone governments.
European stocks pare gains
The STOXX 50 edged down 0.2% to hover at 5,370, while the broader STOXX 600 fell 0.6% to trade below 545. The renewed selling pressure reflected growing unease about the global economic outlook, with investors weighing the impact of weak US growth indicators alongside the European Central Bank's cautious monetary stance.
Companies with higher exposure to global discretionary demand led the downturn, as fears of softer consumer spending weighed on retail and luxury stocks. Inditex, Ferrari, and L’Oreal dropped between 1% and 2%, reflecting concerns that high-end and non-essential purchases may decline amid economic uncertainty. The losses in these sectors mirrored similar weakness seen in US equities, where consumer-facing stocks have been under pressure due to recession concerns.
Best performers post small gains
On the other hand, heavyweight industrial giants continued to provide some support, benefiting from government pledges to ramp up infrastructure and defense spending. Schneider Electric, Safran, and Airbus each gained more than 0.6%, while defense contractors remained among the strongest performers. Rheinmetall and Leonardo surged over 4%, extending their recent rally as European governments committed to boosting military investments in response to geopolitical tensions. The increased defense spending has provided a strong tailwind for defense stocks, which have outperformed the broader market in recent weeks.
The auto sector was also in focus, with Volkswagen rising 2% despite reporting a sharp decline in quarterly profits. The German automaker warned of an uncertain future due to potential US tariffs on European vehicle imports, yet investors reacted with less pessimism than expected, suggesting that some of the downside risks had already been priced in. Meanwhile, Stellantis and BMW traded slightly higher, benefiting from a rebound in European vehicle sales and optimism that government incentives for electric vehicles could provide some support to the sector.
Eyes on macro data
Looking ahead, investors remain cautious as they await key economic data, including inflation figures and industrial production reports, which could provide further clues on the strength of the Eurozone economy. With global growth concerns mounting and monetary policy expectations shifting, European markets are expected to remain volatile in the near term.
