Europe chems stocks tumble amid global sell-off on US economic fears

LONDON (ICIS)–Chemical stocks in Europe slumped in early trading on Monday after a market rout in Asia following bearish US economic data at the end of last week prompted fears of a slowdown.

US recession fears grew after spate of weak economic data on 2 August, showing a sputtering jobs market, an accelerating decline in manufactured goods demand and higher unemployment.

The US added 114,000 new jobs in July, significantly below market expectations, while unemployment rose 0.2 percentage points the same month to 4.3%.

“The bottom line is that the labor market, and by extension the economy, is slowing,” said ICIS senior economist Kevin Swift, commenting on Friday.

On Friday, US Census Bureau data also showed that new US manufacturing sector orders had fallen in June for the second consecutive month, dropping 3.3% after a 0.5% decline in May.

US manufacturing orders have declined since returning to growth in February, with growth falling from 1.4% that month to 0.7% in March and 0.4% in April, before dropping back into contraction territory in May.

Signs of slowing US growth as well as escalating tensions in the Middle East after the death of a Hamas leader in Iran and missile fire between Israel and Lebanon, stoked economic anxiety and led to a slump of 12.4% for Japan’s benchmark Nikkei 225 index at close.

Crude benchmarks Brent and WTI were also down over $1/bbl in early trading in Europe on Monday.

“Everything is about to break to pieces… except maybe gold,” said a styrene distributor on Monday.

The sell-off was less dramatic in Europe, with most key bourses shedding 2% of more of their value as of 12:24 BST. The UK’s FTSE 250 index and Italy’s FTSE MIB saw the sharpest falls, dropping 3.22% and 3.04% respectively in noon trading, and the STOXX Europe 50 index and Germany’s DAX suffering similar declines.

US technology stocks in particular have been punished amid growing Wall Street skepticism about profitability in the growing artificial intelligence (AI) space, with Amazon closing down 8.78% on Friday and Microsoft shares down 2.07%.

Markets, already volatile in the wake of Middle East tensions, a slowing eurozone recovery and the aftermath of Hurricane Beryl in the US, took fright at below-forecast employment data, but the response so far has been dramatic, according to Deutsche Bank.

“Weak payrolls [have] really escalated a profound move across the globe. However the reality is that although payrolls was disappointing it’s hard to know how disappointing given the distortions from Hurricane Beryl. It’s like the market has added up 2+2 and made nine,” said Jim Reid, Deutche Bank’s global head of economic research.

“It’s easily possible we’ll get the additional three and two to make up the total but we’re certainly not there yet. It’s hard to believe such market moves would have occurred in any other month,” he added.

US GDP jumped higher than expected in Q2, increasing 2.8% compared to 1.4% in the first three months of the year, but recessionary fears loom, employment and productivity figures can be a bellwether of trouble to come.

“True recessions start when “reflexivity” in the jobs market kicks in: weaker demand leads to less hiring and more firing, which feeds back into weaker demand, creating a vicious cycle that is only broken with policy support,” said analysts at Capital Dynamics in an investor note.

The STOXX 600 chemicals index was trading down 1.89% as of 12:24 BST, with OCI the biggest loser with a 9.34% decline compared to Friday’s close. Arkema and LANXESS also saw substantial declines, with shares falling 4.53% and 4.56% respectively.

Focus article by Tom Brown.

Thumbnail photo: Outside the New York Stock Exchange. Source: Erik Pendzich/Shutterstock