European stocks lost ground on Monday after logging their best month since November 2020 in July as investors await the Bank of England's latest interest rates decision later this week.
Traders remain on edge about sluggish factory data that showed figures in the UK, eurozone, and China contract by more-than-expected.
New figures from the S&P Global/CIPS show manufacturing purchasing managers' index (PMI) fell to 52.1 last month from 52.8 in June, and slightly below the preliminary "flash" July reading of 52.2.
Eurozone's manufacturing sector fell deeper into contraction territory in July, as PMI data signalled the sharpest decline in output since May 2020.
In Germany, Europe's largest economy, the manufacturing sector also contracted last month, for the first time in two years as producers fear gas shortages. Manufacturing PMI, which covers roughly a fifth of Germany’s economy, fell to 49.3 from 52 in June.
Meanwhile, French manufacturing output fell in July at the fastest rate since the first COVID wave in 2020, coming in at in at 49.5, down from 51.4 in June.
London's bluechip index was lifted earlier by a rally in banking stocks as HSBC shares jumped 7.3% as it provided a dividend payout ratio guidance of around 50% of earnings for 2023 and 2024.
The London-based lender posted better-than-expected results as it pushed back against calls from its top shareholder Ping An (PNGAY) for a break-up of the bank.
Pretax profit reached $9.2bn (£7.6bn) for the six months ending 30 June, down from $10.8bn a year ago, and up on a consensus of £8.2bn. Net profit was up 62% in the second quarter.
Richard Hunter, head of markets at Interactive investor, said: "HSBC has brought the curtain down on the banks’ reporting season in mixed fashion, with a stronger second quarter rescuing the numbers.
"The group’s exposure to Asia has been something of a blessing and a curse over recent months. The share price has been one of the best performers in the sector of late, having risen by 28% over the last year, as compared to a gain of 5.6% for the wider FTSE100.
"While the rate of progress may underwhelm, a behemoth such as HSBC can make only incremental improvements to its model, given its sheer scale and size."
Sterling (GBPUSD=X) edged higher against the dollar as investors turn their attention to the imminent interest rate hike from the BoE, up 0.8% to $1.227. Against the euro (GBPEUR=X) it was little changed at €1.19.
Across the Atlantic, US stocks opened in the red after ending Friday higher across the board, with all three indexes rising in July — their best month since 2020,
It comes as China’s factory activity contracted unexpectedly, with the purchasing manager index falling to 49 in July, from 50.2 in the previous month and below forecasts of 50.4.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: "There was a very mixed bag hidden within the results, with core trends showing the negative effect of new lockdowns in key cities and general concerns over the global economy, following sharp monetary tightening efforts.”
"Output, new orders, buying levels and export orders all shrank. This latest data set does very little to offset concerns around darkening global economic output, especially when put together with a further easing of sentiment."
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