European shares fall on BASF profit warning

European shares fell on Tuesday as a profit warning from chemicals giant BASF led to a slide in German shares, which were on course to post their biggest drop in two months.

The pan-European STOXX 600 index fell 0.7% by 0815 GMT, in line with its Asian peers and Wall Street overnight amid dimming hopes of a sharp interest rate cut by the U.S. Federal Reserve later this month. German shares tumbled 1.3%.

In the latest evidence of the U.S.-China trade war squeezing businesses, BASF slumped 5.8% after warning that profit would fall below forecasts for the second quarter and the full year. It cited the slowdown in global growth and the prolonged trade war as weighing on the agricultural sector as well as global auto production and sales. The warning also led to a 2% drop in the shares of chemicals peer Bayer and pushed both Europe’s chemicals and auto indexes 2% lower.

Also weighing was Deutsche Bank which resumed its slide and was last down 4.1%. It posted its worst day in five months in the prior session as investors questioned the bank’s restructuring targets and its ability to make profits after it undertook a major overhaul.

Meanwhile, Apple suppliers Infineon, ASM and STMicroelectronics slipped about 2% after Rosenblatt Securities on Monday downgraded Apple Inc’s shares to ‘sell’ from ‘neutral’.

Investors will be watching out for Federal Reserve Chair Jerome Powell’s opening remarks on U.S. stress tests later in the day and a two-day testimony before Congress starting Wednesday for clues about a rate cut.

After a sharp sell-off in May due to an escalation in U.S.-China trade tensions, European shares have made a come back on hopes that major central banks around the world would adopt a looser monetary policy.

Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.4% but pared earlier losses, having traded at its lowest level since June 19.