Energy Stocks Drag European Shares Lower, Reversing Earlier Gains

European shares edged down on Monday, dragged lower by energy stocks amid fears of a global economic slowdown fanned by disappointing Chinese economic data and figures showing contraction in euro zone manufacturing activity.

The pan-European STOXX 600 slipped 0.1% after a choppy trading day, reversing slim earlier gains.

Factories across the United States, Europe and Asia struggled for momentum in July as flagging global demand and China's COVID-19 restrictions slowed production, surveys showed, fanning fears of a recession.

Energy stocks shed 1.5%, snapping six straight days of gains, as crude prices dropped sharply after the weak factory data renewed demand concerns. [O/R]

Meanwhile, euro zone unemployment was steady at 6.6% of the workforce in June, the European Union's statistics office said, in line with market expectations.

"The labour market will remain tight even as the economy heads into recession, maintaining the upward pressure on wage growth and inflation," said Jack Allen-Reynolds, senior Europe economist at Capital Economics.

"We expect (pay growth) to pick up further as workers facing record inflation push for bigger wage increases. That will add to the cost pressures facing companies, which in turn is likely to keep consumer price inflation strong next year."

European stocks posted their best monthly performance on Friday since November 2020 helped by strong earnings from corporate Europe, even as broader sentiment remained fragile.

"The picture being painted is looking increasingly bleak for the EU, and a drill down of the numbers shows lower sales, declining rates of new orders and exports, and large rises in stocks," said Stuart Cole, head macro economist at Equiti Capital.

"The expectation has to be that manufacturers will be cutting output further going forward."

In Germany, the powerhouse of the European economy, data showed retailers ended the first half of 2022 with the sharpest year-on-year sales drop in nearly three decades, as inflation, the Ukraine conflict and the pandemic take their toll.

Heineken NV slipped 0.4% as the world's second-largest brewer shelved its margin target for 2023 as costs spiked.

Pearson jumped 12.7% to top the benchmark index after the British education group reiterated its full-year profit outlook.

Other boosts came from banking stocks after London-listed HSBC jumped 6.1% on a profit beat and prospects for chunkier dividends.

Europe's largest bank also pushed back on a proposal by top shareholder Ping An Insurance Group Co of China to split the lender, arguing the move would be costly.

Graphic: Germany's DAX and Italy's FTSE MIB underperform European peers -