The pan-European STOXX 600 index slid 1%, with Germany’s DAX declining 0.9% from record highs hit earlier in the session, while stocks in France, Spain and Italy shed between 0.9% and 1.3%
Europe stocks dropped on Tuesday in their worst session in almost a month, as U.S. manufacturing data brought concerns about a slowdown in global growth back to the forefront ahead of jobs report on Friday.
The pan-European STOXX 600 index slid 1%, with Germany’s DAX declining 0.9% from record highs hit earlier in the session. Stocks in France, Spain and Italy declined between 0.9% and 1.3%.
Declines began early in the session, and increased after U.S. manufacturing data pointed to still-subdued factory activity, raising concerns over the strength of the country’s economy.
All the major European indexes notched their worst session since the global equity selloff in early August that was also triggered by resurgent worries about a U.S. recession.
Over the summer, market focus has turned from concerns about persistently high US inflation that would force the Fed to keep rates restrictive, to fears over a slowdown in the US economy, Danske Bank analysts said, though noting they see the risk of a recession as low.
Europe’s energy and basic resources sectors led declines, down 2.8% and 3.3% respectively, with the resource sector seeing its worst day since October 2023.
Commodity prices declined as sluggish economic growth in China, the world’s biggest crude importer, increased worries about demand while a report of an imminent deal to resolve disputes over Libyan oil production further weighed on crude.
Equities could struggle for momentum before Friday’s U.S. non-farm payrolls (NFP) data, a crucial data point as investors assess the possible quantum of an anticipated Fed rate cut in September. Key economic data for euro zone countries is also due this week.
The ECB is also expected to ease policy this month, though many policymakers have reiterated the need for caution and data-dependency.
We expect a less aggressive cutting cycle by the ECB compared to Fed due to limited slack in the labour market, more persistent inflation and a lower starting point, analysts at Danske Bank wrote in a note.
Rate-sensitive technology stocks on the STOXX 600 also lost ground, declining 2.3%.
