Markets stumble as China throws sand into the gears of recovery
European stocks have come under further pressure today, in sharp contrast to last week.
The falls appear to be being driven by several factors, so you can pick your poison to a certain extent, however the prospect of a Fed taper is unlikely to one of the main factors, given that US yields are lower, commented Michael Hewson, chief market analyst at CMC Markets UK.
“We can start with increasing concerns over a slowing global economy, in the face of increasing restrictions as Delta variant cases rise, as well as concerns about vaccine durability,” Hewson said.
He also factors in the “increasing determination” on the part of China to pour sand in the wheels of its own recovery story with a crackdown on various sectors including tech and luxury, which also appears to be weighing on sentiment, as well as on demand for raw materials, “although we are starting to pull off the lows of the day as we head into the close.”
The FTSE100 is once again under pressure today with weak commodity prices weighing heavily on the index, although it’s not being helped by another 13 stocks going ex-dividend, including Anglo American, M&G and Abrdn.
Mining stocks
Mining stocks have fallen into a hole, along with iron ore and copper prices, as Anglo American, Antofagasta, BHP and Rio Tinto all fall back sharply, as Chinese cuts to steel production announced earlier this month hit demand, as well as consumption for iron ore.
Prices of iron ore hit their lowest levels this year, Hewson pointed out, only three months after they hit all-time highs in May, while oil prices have also hit three month lows, on concerns over lower demand as tighter Covid restrictions heighten worries over economic slowdowns, pushing the likes of BP and Royal Dutch Shell lower.
“Burberry is also lower following on from yesterday’s declines over concerns about Chinese wealth redistribution, which is also hammering the likes of Kering and LVMH on the CAC40 in Paris,” he continued.
Car makers
Automakers have come under pressure after Japanese car maker Toyota announced it was cutting production by 40 per cent in September due to the global chip shortage.
The company said it would now produce 500k vehicles instead of a planned 900k, with various Covid restrictions also affecting the securing of other important components. With further delays and slowdowns likely the likes of BMW, Daimler and Stellantis are all lower.
Defensives are outperforming with the likes of National Grid and SSE edging higher.
Across the pond, US markets opened sharply lower as the weakness in European markets dragged on sentiment into the US open.
“We’ve seen a little bit of a pullback in the first hour of trading which has helped to stabilise markets in Europe,” Hewson said.