Sobering factory surveys and political antics suck world shares lower
There was no let-up for bruised investors, after the worst first half since 2010 — but US and German bonds are attracting a lot of safe-haven buying
London — A renewed slide in Chinese shares and a sobering set of factory surveys sucked world shares lower on Monday, while European markets and the Mexican peso were both jolted by political developments at home.
It was the first day of the new month, quarter and half-year but there was no let up for bruised investors after the worst start to a year for world shares since 2010.
Shanghai’s bear market lurch continued overnight, with losses of up to 3% as companies await about $34bn of US tariffs on Chinese goods this week, and as new business surveys showed some worrying signs of deterioration.
Europe started with a thud too, with the pan-European STOXX 600 index dropping 1% and the euro down 0.5% against the dollar at $1.1630 as the stability of Germany’s coalition government remained in focus.
Trade war worries were compounded by an EU threat to hit the US with almost $300bn in retaliatory tariffs and by data which showed the weakest eurozone manufacturing growth in 18 months.
Europe was also facing the impact of a threat to Chancellor Angela Merkel’s German ruling coalition.
"There are a lot of uncertainties out there," said Elwin de Groot, Rabobank’s head of macro strategy.
"It is pretty unclear what is going to happen in Germany and the trade concerns are really top of mind at the moment, so we are seeing quite a lot of weakness in emerging markets."
All the concerns meant more demand for safe-haven bonds.
US Treasuries and German Bunds attracted buying while E-Mini futures for Wall Street’s S&P 500 followed Europe and Asia’s lead with a loss of 0.5%. Shanghai blue chips resumed their slide with a fall of 2.9% that soured sentiment across the region.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.6%, adding to a 2% drop last week.
Japan’s Nikkei shed 2.2% to an 11-week low, with a survey of manufacturers showing sentiment had darkened a shade in the face of trade war threats.
The purchasing managers’ index (PMI) still edged higher for June, but exports orders softened.
Tension is growing ahead of a July 6 deadline when Washington is due to impose $34bn of tariffs on Chinese exports.
"The key risk for the market isn’t that Trump actually implements his trade threats but rather that a protracted period of trade uncertainty begins to weigh on economic activity," said analysts at JPMorgan.
"The evidence suggesting this is happening is far from conclusive, but ominous data points are accumulating." Two surveys of Chinese manufacturing out in the last few days showed a softening in activity, partly due to softness in exports.
A slew of factory readings from across the globe are due on Monday, while the US Institute for Supply Management (ISM) report is out on Tuesday. Minutes of the last Federal Reserve policy meeting come on Thursday and the week closes with US payrolls for June.
In currency markets the euro took an early knock on reports German Interior Minister Horst Seehofer had rejected a migration deal Merkel negotiated at an EU summit on Friday.
The currency then partly bounced on news Seehofer had offered to step down as minister and as chair of his Christian Social Union (CSU) party, only to backslide again after the euro zone manufacturing data.
Seehofer’s move makes the future of Merkel’s government even more uncertain.
Her Christian Democrats (CDU) rely on the CSU to maintain power through a coalition formed three months ago to end a political vacuum.
The euro was 0.5% lower at $0.1640, having skidded as far as $1.1628 at one stage.
The dollar gained 0.18% on a basket of currencies to 94.808, but was still below Friday’s top of 95.324. It was flat on the yen at ¥110.68, having been as high as ¥111.06 at one stage.
The Mexican peso see-sawed after leftist Andres Manuel Lopez Obrador won a decisive victory for president.
Dealers said the clear win might settle one source of political uncertainty, but Obrador was also expected to sharpen Mexican divisions with US President Donald Trump.
After an initial retreat, the dollar soon rebounded to be up at almost 20 pesos, up from last week’s trough around 19.5580.
Trump loomed large in oil markets with crude taking a spill after he tweeted that Saudi Arabia had agreed to lift oil production by "maybe up to 2,000,000 barrels".
The missive was later downplayed by the White House and Saudi Press Agency.
Brent crude lost 97c to $78.26 a barrel and US crude fell 73c to $73.42. The pullback was still modest given that US crude rallied more than 8% last week and Brent gained more than 5%.