European stocks plummet as US Data sparks growth concerns

European stocks plummet: European markets tumbled on Tuesday, marking their worst performance in almost a month. The decline was driven by US manufacturing data that reignited worries about a global economic slowdown ahead of Friday’s crucial jobs report.

The pan-European STOXX 600 index fell by 1 per cent, with Germany's DAX down 0.9 per cent from record highs achieved earlier in the day. French, Spanish, and Italian stocks also slid, dropping between 0.9 per cent and 1.3 per cent.

Weak US data stokes worries

The downturn began early and worsened as US manufacturing data revealed ongoing weak factory activity, amplifying concerns about the health of the world’s largest economy.

This marks the worst session for European indices since early August, when a global equity selloff was triggered by renewed fears of a US recession.

"Throughout the summer, market attention shifted from fears of persistent US inflation and potential Fed rate hikes to concerns about a slowdown in the US economy," analysts at Danske Bank noted, though they downplayed the likelihood of a recession.

European energy and basic resources sectors led the losses, plummeting 2.8 per cent and 3.3 per cent respectively, with the resource sector experiencing its worst day since October 2023.

Commodity prices also fell, driven by sluggish economic growth in China, the largest crude importer and reports of a potential deal to resolve disputes over Libyan oil production, which further pressured crude prices.

Markets await key reports

Equities may struggle to gain traction before Friday's US non-farm payrolls report, a key indicator as investors gauge the likelihood of a Federal Reserve rate cut in September. Important economic data from eurozone countries is also expected this week.

The European Central Bank (ECB) is anticipated to ease its policy this month, though many policymakers have stressed the importance of caution and data dependence. Analysts at Danske Bank expect a more gradual rate-cutting cycle from the ECB compared to the Fed, citing limited labour market slack, persistent inflation, and a lower starting point.

Rate-sensitive technology stocks on the STOXX 600 also fell, declining by 2.3 per cent, mirroring the downturn in US tech stocks.

Rolls-Royce recovers slightly

In other market moves, Rolls-Royce saw a 1.7 per cent rebound after a significant drop earlier, following news of an engine component failure at Cathay Pacific Airways. The airline reported that 15 Airbus A350 aircraft required component replacement.

Conversely, Partners Group saw a steep 9.2 per cent drop to the bottom of the STOXX 600 after missing earnings expectations for the first half of the financial year.

(With Reuters Inputs)