World stock markets sink after weak manufacturing reports from China, United States

By , on February 6, 2014

SEOUL, South Korea—Japan’s Nikkei 225 stock average dived more than 4 per cent Tuesday as weakness in U.S. and Chinese manufacturing sent world markets sharply lower.

Early European trading mirrored the slide in Asian stock markets, showing investor sentiment remained fragile as weak data from the world’s two biggest economies sparked concerns that growth could wane.

Germany’s DAX drooped 1.1 per cent to 9,088.62. Britain’s FTSE 100 fell 0.6 per cent to 6,429.07 and France’s CAC 40 lost 0.5 per cent to 4,085.76.

Earlier, Japan led the slide in Asian stocks. The Nikkei tumbled 4.2 per cent to 14,008.47 and is down 14 per cent over the past month. Toyota Motor Corp. sank 5.7 per cent before reporting a fivefold surge in its quarterly profit and Sharp Corp. plunged 8.4 per cent.

There were signs U.S. markets might regain their footing, with Dow futures up 0.3 per cent and S&P 500 futures up 0.5 per cent. But market strategists warned against plowing back into stocks.

“Investors should steer clear of risk assets over the short term as the turmoil does not look like it will be over anytime soon,” Credit Agricole CIB said in a report.

Investment sentiment was already fragile because of signs of stress in the financial markets of nations such as Turkey and Argentina. The Federal Reserve is incrementally withdrawing massive stimulus as the U.S. economy recovers from 2008 financial crisis, sending shockwaves through markets that were driven higher by the tide of cheap money created by the Fed’s policy.

Sentiment took a further hit after an official Chinese manufacturing survey showed that factory output grew at a slower rate in January compared with December.

The sell-off in stock markets accelerated after an equivalent U.S. survey showed an unexpected drop in January. The ISM index fell to 51.2 points from 56.5 the previous month.

Analysts say that may be due to the extreme cold weather that hit the country, but is nevertheless disappointing for an economy that hopes to be rebounding.

Some of the slowdown in Chinese manufacturing might be due to Lunar New Year holidays spanning the end of January and early February, reducing working days in both months. But analysts said there could also be an underlying slowdown at work.

“True, there are distortions related to the timing of Lunar New Year, and a pollution and corruption crackdown by Beijing, but the message is still that we are seeing slower growth,” Michael Every, head of financial markets research for Asia-Pacific at Rabobank, said in a report.

South Korea’s Kospi shed 1.7 per cent to 1,886.85 with market heavyweight Samsung Electronics Co. 1.8 per cent lower.

Hong Kong’s Hang Seng declined 2.9 per cent to 21,397.77 on its first day of trading following a 4-day weekend for Lunar New Year. Markets in China and Taiwan were closed. Australia’s S&P/ASX 200 dropped 1.8 per cent to 5,097.10. Stocks in the Philippines, Indonesia and Thailand also fell.

In energy markets, benchmark U.S. crude for March delivery was up 23 cents at $96.66 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.06 to close at $96.43 on Monday.

The euro fell to $1.3505 from $1.3523 late Monday. The dollar rose to 101.31 yen from 101.14 yen.