An investor watches the electronic board at a stock exchange hall on January 21, 2019 in Nanjing, Jiangsu Province of China. Picture: VCG / GETTY IMAGES
An investor watches the electronic board at a stock exchange hall on January 21, 2019 in Nanjing, Jiangsu Province of China. Picture: VCG / GETTY IMAGES

London — Chinese shares were more than 4% lower on Friday after data showed exports contracting by a fifth, deepening fears for the world economy and pushing global equities to three-week troughs.

The February data, well below expectations of a 4.8% drop, worsened the brittle mood on world markets, following the European Central Bank's announcement slashing growth forecasts and unveiling a new round of policy stimulus.

While the timing of the lunar new year made it difficult to draw a true signal from the China data noise, the scale was alarming, especially when coupled with sombre new data from Germany and Norway.

Chinese stocks plunged more than 4% in their worst day in five months while Japan's Nikkei closed 2% lower.

The dark mood spilt into European stock markets where the Stoxx 600 index slipped 0.5%, poised for the first weekly drop in a month.

"The trade data from China is a big part of it," said Fiera Capital's co-chief investment officer Julian Mayo.

"Our own view is that the Chinese economy is slower than people generally think, but I think the world economy is probably slower than people think, so you put those two together and it is not surprising that the trade data was weaker than expected."

European vehicle stocks were at the forefront, slipping 1.6%, with an unexpected decline in German industrial orders adding to the China woes. Financials also nursed losses for a second day after the European Central Bank cut its growth forecasts and pushed out an interest-rate hike.

ECB President Mario Draghi said the economy was in "a period of continued weakness and pervasive uncertainty" as he pushed out a planned rate hike and instead offered banks a new round of cheap loans.

MSCI's 47-country benchmark world index dropped for a fifth straight session - its longest losing streak since December's rout. The pressure looked to continue on Wall Street, with S&P 500 E-Mini futures easing 0.4 percent.

Yet the cocktail of growth woes and dovish central banks proved a boon for bonds. Germany's benchmark 10-year bond yield took a step closer to zero percent and both German and French benchmark yields were at their lowest level since 2016 - the year that saw the ECB ramp up stimulus and cut rates to fight deflation and weak economic growth.

"The ECB has had a bullish impact on bond markets and that is set to continue," said Ciaran O'Hagan, rates strategist at Societe Generale in Paris. "We were not expecting something so clear, so soon, and markets were not either, so bond yields are likely to stay low for longer."

US 10-year Treasury yields hit a fresh two week low 2.627%.

On currency markets, the euro inched up to $1.1209 after tumbling 1% on Thursday to touch $1.1176 — its lowest since June 2017.

The dollar weakened 0.2% after reaching a new 2019 high against a basket of currencies that includes the euro as traders bet the US would fare better than Europe in the coming months despite some soft patches in the US economy.

Investors will be scouring US payrolls data for February due out later in the day, with analysts uncertain how much payback there might be for January's outsized jump. There was also a chance the jobless rate could fall by more than forecast given the recent strength in employment.

In commodity markets, oil prices eased as US crude output and exports climbed to record highs, undermining efforts by producer club Opec to tighten global markets.

US crude was last down 38 US cents at $56.28 a barrel, while Brent crude fell 49c to $65.81.

Reuters