European stocks extended their slide as weak German data and elevated oil prices reignited stagflation concerns across the euro area.
(Bloomberg) — European stocks extended their slide as weak German data and elevated oil prices reignited stagflation concerns across the euro area.
The Stoxx 600 index retreated 0.7%, falling for the sixth straight session after German factory orders plummeted in July, showing that the woes of Europe’s biggest economy are continuing into the third quarter. Fears of stumbling growth and sticky inflation were also fanned by Brent crude prices holding just below $90 per barrel after the largest OPEC+ oil producers extended their supply cuts to year-end.
The weakness in Europe and deepening signs of an economic slowdown in China put pressure on equity futures in the US, where signs are mounting that the Federal Reserve won’t cut interest rates any time soon.
“The euro zone and UK are dabbling with recession, which markets had forgotten about three months ago,” said Rupert Thompson, chief economist at Kingswood Holdings Ltd. “It’s clear growth will head in the wrong direction in the coming months, which means equity markets will remain under downward pressure.”
The US economy’s relative resilience has boosted the dollar, with conviction growing that the European Central Bank will hold off raising interest rates at its meeting next week. The greenback traded steady near a 5-1/2-month high against a basket of developed-market currencies after a run of seven weekly gains.
The euro got a brief boost from comments by ECB rate-setter Klaas Knot, who said markets may be underestimating the chances of a September interest-rate hike.
“Our long-term view is that the dollar is overvalued, but for now cyclical pressures are in the other direction, so the pressure is for the dollar to strengthen,” said Thompson, who expects the ECB to hold rates steady next week.
Japan Warns
Japan issued its strongest warning in weeks against rapid declines in the yen on Wednesday, with its top currency official saying the nation is ready to take action amid speculative moves in the market. The yen plumbed a 10-month low against the greenback.
Shortly after, China’s central bank offered the most forceful guidance on record with its daily reference rate for the yuan, as the managed currency weakened toward a level unseen since 2007.
The bullish dollar view has also been boosted by the rally in crude prices.
Goldman Sachs Group Inc. warned of upside risks to its end-year Brent target of $86 per barrel and UBS Global Wealth Management forecast Brent and US WTI benchmark to end the year at $95 and $91 per barrel, respectively.
Asian stocks steadied, with Chinese property developers notching gains on speculation that further stimulus is forthcoming.
Key events this week:
- Eurozone retail sales, Wednesday
- Germany factory orders, Wednesday
- US trade, ISM services index, Wednesday
- Canada rate decision, Wednesday
- Bank of England Governor Andrew Bailey testifies to the UK parliament’s Treasury Select Committee, Wednesday
- Federal Reserve issues Beige Book economic survey, Wednesday
- Boston Fed President Susan Collins speaks, Wednesday
- Dallas Fed President Lorie Logan speaks, Wednesday
- China trade, forex reserves, Thursday
- Eurozone GDP, Thursday
- US initial jobless claims, Thursday
- Bank of Canada Governor Tiff Macklem to speak on the Economic Progress Report, Thursday
- Atlanta Fed President Raphael Bostic speaks, Thursday
- New York Fed President John Williams participates in moderated discussion at the Bloomberg Market Forum, Thursday
- Japan GDP, Friday
- Germany CPI, Friday
- US wholesale inventories, consumer credit, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.6% as of 11:01 a.m. London time
- S&P 500 futures fell 0.2%
- Nasdaq 100 futures fell 0.3%
- Futures on the Dow Jones Industrial Average fell 0.2%
- The MSCI Asia Pacific Index was little changed
- The MSCI Emerging Markets Index fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.1% to $1.0733
- The Japanese yen rose 0.2% to 147.41 per dollar
- The offshore yuan was little changed at 7.3108 per dollar
- The British pound was little changed at $1.2553
Cryptocurrencies
- Bitcoin rose 0.1% to $25,736.52
- Ether rose 0.1% to $1,631.19
Bonds
- The yield on 10-year Treasuries was little changed at 4.25%
- Germany’s 10-year yield was little changed at 2.62%
- Britain’s 10-year yield was little changed at 4.53%
Commodities
- Brent crude fell 0.6% to $89.54 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Brett Miller, Jake Lloyd-Smith, Yumi Teso and Tassia Sipahutar.
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