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European stocks followed China lower on Tuesday as fresh economic data pointed to weak factory activity across Asia and the eurozone, raising investor concerns about a global slowdown in demand for goods.
The region-wide Stoxx Europe 600 index fell 0.5 per cent, extending early morning losses, while France’s Cac 40 and Germany’s Dax lost 0.9 per cent and 0.8 per cent respectively. The consumer goods sector led declines, down 1.2 per cent.
The moves came as fresh data pointed to a continued slowdown in manufacturing activity across the eurozone, in a sign that the region’s high borrowing costs and inflation weighed on demand.
HCOB’s final eurozone manufacturing purchasing managers’ index fell to 42.7 in July from 43.4 in the previous month, hitting its lowest level since May 2020 when the region’s economy was hit by the onset of the Covid-19 pandemic.
The index measuring factory activity in Germany, the eurozone’s largest economy, fell to 38.8 from 40.6 in the previous month. A reading below 50 means the majority of respondents reported a contraction in activity.
The declines echoed markets in China, where the CSI 300 index of Shanghai- and Shenzhen-listed stocks fell 0.4 per cent and Hong Kong’s Hang Seng lost 0.3 per cent, as investors worried about the country’s stalled post-pandemic recovery.
The Caixin manufacturing purchasing managers’ index, a private sector survey tracking monthly changes in factory activity, slipped to 49.2 in July from 50.5 in June, undershooting analysts’ forecasts of 50.3.
The politburo, China’s top decision-making body, had earlier vowed to extend further support to prop up the world’s second-largest economy but offered few details, testing investors’ nerves.
“This limited policy support means that China’s recovery probably will continue to be ‘tortuous’, uneven and drawn out,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.
Elsewhere in Asia, Japan’s Topix index was up 0.6 per cent, and South Korea’s benchmark Kospi rose 1.3 per cent.
Meanwhile, slowing inflation prompted Australia’s central bank to keep its key interest rate unchanged for the second consecutive meeting, at 4.1 per cent, defying market forecasts of a 0.25 percentage point increase. The S&P/ASX 200 gained 0.5 per cent.
The meeting came a week after central banks in the US and Europe raised rates but refrained from their usual hawkish guidance in a sign that the global tightening cycle could soon draw to a close.
In the US, contracts tracking Wall Street’s benchmark S&P 500 fell 0.2 per cent, while those tracking the tech-focused Nasdaq 100 slipped 0.3 per cent ahead of the New York open.
US stocks clocked their longest monthly winning streak in two years in July, as signs of falling inflation and resilient growth raised investors’ hopes that the US Federal Reserve could complete its monetary tightening cycle without causing a recession.
“The attitude of the market is assured and investors expect upside for the foreseeable future, and any downside along the way is being dismissed as trivial noise,” said Mike Zigmont, head of research and trading at Harvest Volatility.