Europe close: Stocks clobbered by weak data

14 August 2019

(Sharecast News) - Stocks across Europe finished the Wednesday session deep in the red, failing to follow-through on the previous session's gains after the release of data confirming that Germany's economy shrank during the second quarter and showing much weaker than forecast activity in China, including industrial output running at a 17-year low.
In timely fashion perhaps, the day before <em>UBS</em> strategists Francois Trahan and Samuel Blackman reportedly cautioned clients that 'buying the dip' when purchasing managers indices' are in their low 50s and apparently headed lower usually made such a strategy "a losing proposition".

Adding to the selling pressure, shortly after noon, <em>CNBC</em>'s Kayla Tausche reported that a senior US administration official had said that Washington's latest tariff reprieve was "not at all" an indication of a thaw in US-China relations.

By the end of trading, the benchmark Stoxx 600 had lost 1.68% to 366.16, alongside a drop of 2.53% to 20,020.28 for the FTSE Mibtel and a fall of 2.19% to 11,492.66 on the German Dax.

Fanning growth concerns, interest rate curves in both the UK and US spent the better part of the session flirting with a so-called 'inversion', a possible signal that an economic recession was now likely in the short-term.

"This yield curve inversion is a sell signal for risk assets and should put extra pressure on equities. Futures in the US had been tracking Europe lower and are extending their declines. Yesterday's bounce is proving short-lived," said Neil Wilson, chief market analyst at Markets.com.

Shares of Basic Resources companies were particularly weak, with the Stoxx 600 sector gauge down by 2.51% at 382.92.

Overnight, China's National Bureau of Statistics reported that the year-on-year rate of growth in industrial production in the Asian giant had slowed from 6.3% in June to only 4.8% for July (consensus: 6.0%), alongside a similarly big slowdown in fixed asset investment.

On Tuesday, stocks around the world - and across the Continent - had snapped higher after Washington dialed back on its most recent tariff threats against Chinese exports, but analysts remained of a cautious bent.

"There's little reason for optimism on this, given how recent meetings have gone, but we have to hope that eventually common sense will prevail. It's just a case of how much pain both sides are willing to take and inflict on others in the meantime," said Oanda senior market analyst Craig Erlam.

According to the Federal Office of Statistics, German gross domestic product shrank at a 0.1% quarter-on-quarter pace over the three months to June, as expected.

Claus Vistesen at Pantheon Macroeconomics told clients that the risk of a recession was now elevated although domestic private demand remained "relatively resilient".

At the wider Eurozone level, GDP growth slowed from the 0.4% clip observed during the first quarter to 0.2% in the second, despite the drop seen in German activity and Italy's economy grinding to a standstill.

The French, Dutch, Spanish and Portuguese economies on the other hand continued to expand, particularly the last three.

Shares of Schindler finished sharply lower after the Swiss elevator maker posted a 22.0% decline in profits.