A second day of grim German data and expectations for a cut in the International Monetary Fund (IMF)’s growth forecasts spooked European assets on Tuesday as the recent spell of global financial market volatility continued.
Wall Street futures prices pointed to a fifth day of modest falls in six for US markets ahead of this week’s start of third quarter earnings season, likely to be dominated by the potential impact of the recent surge in the dollar.
A day after German industrial orders saw their biggest monthly drop since the height of the global financial crisis in 2009, its industrial output figures for August plunged by 4 percent in the worst fall in more than five years.
“Industrial production is currently going through a weak phase,” Germany’s Economy Ministry said in a statement. “All in all, one should expect weak production for the third quarter as a whole.”
The worrying outlook saw European bourses jolt lower, led by a 0.8 percent drop on Germany’s Dax, which is heavily exposed to global growth via firms like Siemens and Volkswagen and has now lost 7.5 percent in the last three weeks.
London, Paris, Milan and Madrid took sharp tumbles too, while Italian, Spanish and French government bonds yields rose amid doubts about what a slowing Germany would mean for their more fragile economies.
It also fits with global worries. Apart from the United States, indicators of world growth have slipped sharply over the past few months as unrest in Ukraine, the Middle East and parts of Asia have all taken a toll.
“Over the summer, there has been quite an apparent divergence in the global growth story,” said Kerry Craig, a global markets strategist at JP Morgan.
“What we are seeing is quite an ugly and uneven recovery. Growth in euro zone has stalled and then you have to contrast that with what is going on in the US where the labour market continues to tighten faster than the Fed has predicted.”