Stock markets on both sides of the Atlantic came under heavy pressure from high US bond yields amid inflation fears yesterday, while signs of a coming economic slowdown hit stocks in luxury goods and technology firms hard.
“US stocks are extending a recent drop, along with Europe, with the persistent rise in Treasury yields continuing to unnerve the global markets, joining festering trade concerns and European political dysfunction,” analysts at Charles Schwab said.
Investors looking for reasons to dump shares had a good many to choose from, and the selling wave pulled some key markets down by 2% or more.
“There are a number of worries for investors right now, from the pace of rising bond yields and the impact on investor sentiment, to Italy’s populist coalition playing a game of chicken with the European Commission, stalling Brexit negotiations and the ongoing trade conflict between the US and China,” said Craig Erlam, senior market analyst at Oanda trading group.
A strong euro against the dollar added pressure on eurozone stock markets.
The oil price dropped sharply as economic growth expectations were downgraded.
Neil Wilson, an analyst with Markets.com, said he detected a “smattering of fear” across markets, with the main drag on equities coming from tech stocks which, he said, had “been the real drivers of the stock market performance in recent years”.
Shares in European luxury companies also lost much of their shine as investors feared that any slowdown in global economic growth will translate into dwindling sales for high-end firms.
The IMF on Tuesday delivered a reality check on world growth, cutting its forecast for global expansion because of trade risks and rising international debt levels.
Across Europe, London’s FTSE 100 fell 1.3% at 7,145.74 points at close; Paris’ CAC 40 was down 2.1% at 5,206.22, while Frankfurt’s DAX 30 fell 2.2% at 11,712.50.
In Paris, shares in Kering fell nearly 10%, LVMH over 7% and Hermes around 5%.
In Milan, Moncler lost more than 10 %, Ferragamo nearly eight, and Luxottica over 3%.
In Zurich, Richemont and stocks in several leading watch manufacturers also suffered sharp falls.
Investors fear that luxury sector players “won’t be able to sustain the pace of growth seen in previous quarters if the economic slowdown in emerging countries gets much worse, particularly in China,” Yann Azuelos, a portfolio manager at Mirabaud France, told AFP.
Analysts cited Morgan Stanley’s move to cut its recommendation on European luxury as an additional factor weighing on the sector.
On Wall Street, the Dow and S&P 500 were both about 1.5% down in the late New York morning, but the tech-heavy Nasdaq index lost over 2%.
“There’s nervousness concerning technology stocks,” said Alexandre Baradez, an analyst at IG France.”There are fears concerning forecasts for the third and fourth quarters,” he told AFP.
Earlier, Asian stock markets ended cautiously higher, after a volatile session for US equities and as yields on Treasury bonds retreated from a seven-year peak.
Investors have been nervous since the yield on 10-year US Treasury bonds surged above 3.0 %.
Yesterday it went higher again, to reach 3.22%.
The advance followed a stream of strong US economic data that was seen as boosting the likelihood that the Federal Reserve will persist in raising interest rates.
In Europe this week, the closely-watched spread between the rates on 10-year bonds in Italy compared with those offered by Germany, which is a measure of the added risk perceived by investors to holding onto Italian debt, hit the highest level since April 2013.
Markets have been shaken by a row between Brussels and Rome, who are at loggerheads after Italy’s populist government passed a purse-busting budget last week to the annoyance of the EU.