Stock markets on both sides of the Atlantic took a steep downward turn yesterday after a US survey pointed to the worst level of manufacturing contracts in a decade.
Combined with a weak inflation reading from the eurozone, and confirmation that British GDP fell 0.2% in the second quarter, the figures rekindled fears for worldwide growth.
Global trade fears were behind the surprise drop in the ISM manufacturing index, the US survey said, worries that immediately fed into existing anguish about the impact of an ongoing US-China trade war.
“A more than 10-year low in ISM’s Manufacturing Index joined soft reads from the sector out of the eurozone and UK to amplify global growth concerns,” said analysts at Charles Schwab.
Eurozone stocks, which had spent most of the session calmly tweaking portfolios at the start of the final quarter, suffered an abrupt fall to end the day sharply lower.
London’s FTSE 100 closed 0.7% down at 7,360.32 points, Frankfurt’s DAX 30 ended 1.3% down at 12,263.83 points and Paris’ CAC 40 finished 1.4% lower at 5,597.63 points, while the EURO STOXX 50 closed 1.4% down at 3,518.25 points.
Wall Street, which had opened higher, gave up opening gains to trade well in the red by the late New York morning.
The US data obliterated what little optimism lingered across trading rooms ahead of US-China trade talks resuming this month.
Investors are now looking to a US jobs report on Friday for further clues to the state of the world’s top economy.
They are also eagerly awaiting next week’s resumption of trade talks between Beijing and Washington, said Quincy Krosby, chief market strategist of Prudential Financial.
The latest discussions set for October 10 are “clearly a positive for the markets because the effect it has on the world economy is paramount going into the last quarter”, Krosby said.
Meanwhile, the World Trade Organisation yesterday cut its 2019 trade growth forecast to 1.2%, a sharp downgrade on the 2.6-percent rise predicted in April, which the body blamed on trade tensions.
“The darkening outlook for trade is discouraging but not unexpected,” WTO director general Roberto Azevedo said in a statement.
Earlier, Asian stocks had performed well.
Sydney’s stock market closed up 0.8% and the Australian dollar dipped after the Reserve Bank of Australia cut interest rates to a new low.
Elsewhere, an attempted recovery in oil prices from a four-percent drop on Monday was cut short by growth worries.
“Stocks are largely positive as we approach the close as traders are a little less fearful about the US-China trade situation,” said David Madden, a market analyst at CMC Markets UK, shortly before trading ended for the day.
Eurozone blue-chips rose 0.7% on the day as companies that earn their revenue in dollars were boosted by a fall in the euro on concerns about eurozone growth.
Germany’s leading economic institutes have revised down their growth forecast for Europe’s biggest economy for this year, sources told Reuters on Monday, the same day data showed German annual inflation unexpectedly slowed for the third consecutive month in September.
But Carsten Brzeski, chief economist at ING Germany said lower inflation indicated that “the feared growing contagion from the manufacturing meltdown to the rest of the German economy is not (yet) materialising”.
“Even better, private consumption should benefit from lower inflation rates in the coming months,” he added.
Germany’s DAX index rose for a third session, adding 0.4%.
JPMorgan raised its rating on eurozone equities to “overweight”, saying the bloc’s battered stocks have been under owned and predicting an opportunity for them to bounce back.
Commodity-linked stocks and oil majors closed lower, weighing on London stocks, while all other major sectors in Europe ended higher.
There were, however, signs of underlying worries with defensive sectors such as utilities, real estate and food and beverage among the top gainers.
A report on Friday said the United States might limit Chinese company listings on its stock exchanges, fuelling more US-China trade angst ahead of critical negotiations next week.
However, White House trade adviser Peter Navarro on Monday dismissed reports that the Trump administration was considering delisting Chinese companies from US stock exchanges as “fake news.”
Equity markets rallied in September on monetary easing from the European Central Bank and the US Federal Reserve, and hopes of a resolution to the economically damaging trade war.
But gains have slowed substantially from the 12% increase posted by European shares in the first quarter of the year as concerns linger about the health of the eurozone economy, as well as trade.
GlaxoSmithKline gained 1.1% after its maintenance therapy for a form of ovarian cancer reduced the risk of disease progression or death.
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