Global Stocks Tumble On Poor Econ Data From China To Europe

It's a sea of red to end the week as world stocks and US futures tumbled on Friday after weak economic data from China to Europe raised global recession fears and left investors nervous over the impact of a still-unresolved Sino-U.S. trade dispute even as China announced it would roll back retaliatory auto tariffs by 3 months; Treasuries and the dollar jumped amid a renewed flight to safety.

Growth concerns came back into focus after European Central Bank President Mario Draghi said economic risks were moving to the downside, while in China retail sales and industrial production figures for November fell significantly short of estimates. The lackluster readings from Europe on car sales and manufacturing simply added to the gloom.

The MSCI All-Country World Index was down half a percent, with all major markets deep in the red. Europe's Stoxx 600 Index headed for a weekly loss, dragged lower by automakers after regional sales slumped in November for the third month in a row.

Eurozone business ended the year on a weak note, expanding at the slowest pace in over four years as new order growth all but dried up, hurt by trade tensions and the Yellow Vests” movement. The France PMI survey showed French business activity plunged unexpectedly into contraction this month, retreating at the fastest pace in over four years with the slowdown largely blamed on the recent violent anti-government protests.

 

Elsewhere, Germany’s private sector expansion slowed to a four-year low, suggesting growth in Europe’s largest economy may be weak in the final quarter as Mfg PMI declined from 51.8 to 51.5 (exp. 52.0) while the Services PMI dropped from 53.3 to 52.2, also missing expectations for a rebound to 53.4.

Adding to the ECB's gloomy outlook, the Bundesbank lowered German growth projections, warning of downside risks: the German central bank today revealed its updated growth projections, which cut back the GDP forecast to just 1.5% this year from 2.0% expected previously, hardly a surprise after the -0.2% q/q contraction in Q3. The forecast for 2019 was cut to 1.6% from 1.9% and for 2020 and 2021 the Bundesbank expects growth of 1.6% and 1.5% respectively.

Stock markets in Europe opened sharply lower, with Germany’s DAX index falling 1.5% while the pan-European STOXX 600 index was down 0.9%, paring some losses as European automakers saw their losses cut in half on the China tariff news.

 

The data out of Europe added to weak readings from China, where November retail sales grew at the weakest pace since 2003 and industrial output rose the least in nearly three years, underlining risks to the world’s second-largest economy as Beijing works to defuse a trade dispute with the United States.

 

A Chinese statistics bureau spokesman said the November data showed downward pressure on the economy is increasing.

The data “means that the worst is yet to come and policymakers will be very worried, particularly with consumption growth falling off a cliff,” said Sue Trinh, head of Asia FX strategy at RBC Capital Markets in Hong Kong. “So I expect further support measures including rate cuts will come in coming weeks, although these data would indicate measures to date aren’t really working.”

The Chinese yuan weakened 0.4% to 6.9063 per dollar in offshore trade following the data.

As a result, equities slumped across Asia, with shares in Hong Kong and Japan leading the retreat. MSCI’s index of Asia-Pacific shares ex Japan fell 1.5%. Japan’s Nikkei, also dragged down by the country’s weak tankan sentiment index, dropped 2.0%. China’s benchmark Shanghai Composite and the blue-chip CSI 300 closed down 1.5 percent and 1.7 percent, respectively, and Hong Kong’s Hang Seng was off 1.5 percent.

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