Europe markets slump on US, China demand worries, commodity shocks

LONDON (ICIS)–Europe chemicals shares and public markets slumped on Wednesday in the wake of sell-offs in Asia and the US on the back of growth fears and a crude oil sell-off.

Stock exchanges in Asia and the US crashed on Tuesday night and Wednesday morning for the second time in less than a month after another market rout, with weak economic data from the US and China once more ringing alarm bells.

BEARISH US INDICATORS
As was the case during the early August rout, bearish economic data from the US stoked market fears of a slowdown in the country, which has proven the most resilient large mature economy during the slump of the last few years.

The US manufacturing sector contraction deepened in August, according to purchasing managers’ index (PMI) data collected by S&P Global, showing a drop from 49.6 in July to 47.9, with future indicators pointing to potential further deterioration ahead.

“There is a worrying narrowing of the pockets of strength,” said ING chief international economist James Knightley, commenting o the numbers.

“Just 22% of industry is experiencing rising orders and just 17% are seeing rising production. Historically, this weakness in output and orders points to a sharp slowing in GDP growth,” he added.

The August figures are the latest warning signal on economic momentum in the country, following an unexpected decline in manufactured goods orders in June, according to the US Census Bureau in early August, the most recent data available.

As was the case in last month’s market crash, tech stock slumps led the US declines on Tuesday.  While sector declines last month had been driven by growing scepticism over the potential of artificial intelligence, Nvidia saw one of the sharpest falls declines this month.

The chipmaker reportedly received a government subpoena as part of an antitrust investigation wiped over 9% off its market value, a loss estimated at $279 billion.

ASIA SLUMPS
With global microchip supply chains strongly connected to Asia, the Nvidia sell-off also ripple through the region’s technology stocks, with core players including Samsung, Tokyo Electro and Taiwan Semiconductor suffering sharp losses by Tuesday’s close.

Economic data for China released late last week showed the first decline in export orders in eight months, while the manufacturing sector I the country remained in contraction for the fourth consecutive month in August, and house prices seeing the slowest pace of growth in 2024 so far.

Industrial indicators for Europe, where manufacturing has been on recessionary footing for over two years, new order volumes are continuing to decline, potentially signalling a period in autumn where manufacturing demand is shrinking in US, China and the eurozone.

OIL SUPPLY LENGTHENS
Crude oil prices also slumped, falling to the lowest level in  to the lowest levels of the year, on the back of expectations that the OPEC+ coalition will begin to unwind their 2.2 million bbl/day production cuts next month.

Expectations that Libya will begin to restart crude production and exports after a political agreement was reached.

These two factors point to a substantial increase in supply despite ongoing sluggish demand, driving Brent and WTI futures down to $74.19/bbl and $70.79/bbl respectively in midday trading on 4 September.

The US Dow, S&P 500 and NASDAQ indices closed down 1.51%, 2.12% and 3.26% respectively on Tuesday evening, while Japan’s Nikkei 224 and Hong Kong’s Hang Seng bourses concluded trading down 4.24% and 1.10% on Wednesday.

In Europe, Germany’s DAX index was down 0.84% in midday Wednesday trading, while France’s CAC 40 and the STOXX Europe 50 index had lost 0.97% and 1.19% respectively.

Aggregate chemicals sector losses were more modest, with the STOXX 600 index for the sector down 0.15% as of 13:29 BST.

EMS-Chemie and Umicore had suffered the sharpest declines as of that time, dropping 1.49% and 1.31%. Linde and Yara shares both dropped 0.97% compared to Tuesday’s close, while Brenntag, Bayer and OCI saw falls of over 0.50%.

Focus article by Tom Brown.

Thumbnail photo: Traders in Seoul, South Korea, on 4 September, The South Korea Composite Stock Price Index (KOSPI) closed down 3.15% on the day. Source: Jeon Heon-Kyun/EPA-EFE/Shutterstock