European Stocks Fall for Sixth Day on Weak German Data, Oil Gain

(Bloomberg) -- European equities were heading towards a sixth straight session of decline on Wednesday, as the recent rise in oil prices and weak economic data from Germany added to concern that the region is heading for stagflation.

The Stoxx Europe 600 Index declined  at 1:50 p.m. in London, with 15 of the 20 subindexes in red. German factory orders plummeted in July, in another sign that the woes of Europe's biggest economy continued into the third quarter.

Luxury stocks were the biggest laggards in the region, adding to their recent declines amid persistent worries about the Chinese economy. Telecom stocks outperformed after Saudi Telecom Co. said it's taking a 10% stake in Spain's Telefonica SA. 

European stocks have been stuck in the same 5% range since April, with neutral breadth hiding still-negative sentiment. The most recent weakness came amid fears the euro zone will be mired in stagflation should inflation prove stickier than anticipated, causing the European Central Bank to persist with interest rate increases, while tepid growth morphs into recession. 

“There's a risk that with oil prices rising back to November highs, investors will worry about what the ECB will do next week ,” says Alexandre Baradez,  chief market analyst at IG Markets in Paris. “Sentiment had been improving since the US job data last week but now rising commodities are starting to change the picture when it comes to inflation.” 

ECB Governing Council member Francois Villeroy de Galhau on Wednesday said interest rates are near a peak, but declined to indicate if that means the institution should hike or hold rates steady next week.

Governing Council member Klaas Knot warned, however, that investors betting against an ECB rate increase next week are “maybe” underestimating the likelihood of it happening.

Real estate, which typically benefits from lower interest rates, was among the few subindexes rising. 

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