Recovery concerns drag on European stocks
The pan-European Stoxx 600 Index opened 0.2% lower, London’s FTSE 100 lost 0.3%, while the DAX in Frankfurt fell 0.2% and Paris’s CAC-40 traded 0.4% lower.
This week’s downbeat assessment of the U.S. economy by the Federal Reserve, data suggesting the Chinese economy was slowing, and the Bank of England’s pessimism Wednesday about the growth outlook for the U.K. have prompted investors to move out of riskier assets such as equities and the euro.
“Asian markets have again been rattled by these concerns and the effects look set to seep across Europe for a second consecutive day,” said Cameron Peacock, a market analyst at IG Markets.
The markets’ mood soured further Wednesday after the U.S. June trade deficit widened unexpectedly to $49.9 billion from $42 billion in May, due to strong imports of consumer goods and autos. The deficit was much worse than the assumption of $44.4 billion used in estimating U.S. second-quarter gross-domestic-product growth.
“Based on the information at hand [including inventory], we reckon that U.S. second-quarter GDP growth is likely to be revised downward to between +1% and +1.5% from +2.4%. While the strong imports could mean rebounding domestic demand, markets nevertheless pay more attention to the slower growth it implies,” said Crédit Agricole. On top of this, “Chinese July data showed clear, and mostly deeper-than-expected, slowdown of growth,” it added.
As a result, market participants in Europe adopted a cautious stance ahead of economic data due from the euro zone Thursday. “The big macro news of the day is the European Central Bank’s monthly report, which is due [0800 GMT], as well as the latest European industrial production numbers [at 0900 GMT], which will provide the latest insight into the health of the European manufacturing industry,” said Ms. Peacock.
On Wall Street, stocks dived Wednesday amid the warning signals from both the U.S. and China. The Dow Jones Industrial Average tumbled 2.5% to 10,378.83, while the Standard & Poor’s 500 Index fell 2.8% to 1089.47 and the Nasdaq Composite slid 3% to 2208.63.
A string of economic reports from China, including retail sales and industrial output, indicated the nation’s economic growth is slowing. China is a big source of demand for U.S. companies, especially in the materials sector. In turn, investors are concerned about the impact on the U.S. economy, especially after the U.S. Federal Reserve noted Tuesday that the U.S. economic recovery is “more modest” than anticipated.
The losses on Wall Street weighed on Asian stock markets Thursday, with shares in Japan sliding as the yen rose sharply against the dollar and the euro. South Korea’s Kospi Composite lost 1.4%, while China’s Shanghai Composite was 0.6% lower and Hong Kong’s Hang Seng Index fell 1.4%.
Japan’s Nikkei Stock Average was down 0.9%, continuing to suffer from the yen’s strength, after the dollar slipped briefly to a 15-year low at 84.72 yen Wednesday. The yen is considered a safe haven in times of uncertainty.
In recent trading, the dollar was buying 85.40 yen, up marginally from 85.40 yen late in New York Wednesday. The euro was fetching $1.2911, up from $1.2883, and was trading at 110.25 yen, up from 109.73 yen.
Among other asset classes, spot gold was at $1199.40 per troy ounce, down 60 cents from late New York Wednesday. In the oil market, September Nymex crude-oil futures were down 47 cents at $77.55 per barrel. Elsewhere, in the sovereign-debt market, the September bund future was down 0.07 at 131.07.