Picture: 123RF/SOLAR SEVEN
Picture: 123RF/SOLAR SEVEN

London — European stocks fell on Wednesday as Germany’s economy went into reverse, reviving fears of global recession and tempering a rally for equities after Washington delayed tariffs on some Chinese imports.

Europe’s biggest economy shrank 0.1% in the second quarter as the trade war and weak demand dragged on German manufacturers The eurozone as a whole reported GDP grew just 0.2% in the same quarter.

The Euro Stoxx 600 fell 0.4%. Markets in London, Frankfurt and Paris lost from 0.2% to 0.6%. Wall Street futures gauges were also lower.

Bond markets were also flashing warning signals of a recession. The gap between US two-year and 10-year treasury yields — a closely watched metric for signs of a slowdown — fell to less than a basis point after shrinking on Tuesday to its narrowest since June 2007.

The German figures, along with data showing the slowest growth for Chinese industrial output in 17 years stoking recession worries, knocked the wind out the sails for stocks.

Equity investors on Wall Street and Asia had cheered earlier when US President Donald Trump pushed back a September 1 deadline for new tariffs on remaining Chinese imports.

The S&P 500, which had fallen 1% on Monday, rose 1.5% overnight, sending Asian stocks outside Japan up 0.6%. Benchmarks in Shanghai, Hong Kong and Tokyo all mirrored the surge in US stocks.

However, the momentum ebbed in Europe, as optimism faded that Trump’s move meant tensions were easing and Germany’s slowdown showed the damage already done by the trade war.

“The trade war and the dispute between US and China has already had an impact — especially when you look at countries most sensitive to global trade such as Germany and even Italy,” said Christophe Barraud, chief economist and strategist at Market Securities in Paris.

The MSCI world equity index, which tracks shares in 47 countries, was flat.

In another sign the trade dispute is dragging on economic growth, China’s industrial output slowed more than expected in July. Its 4.8% growth was the lowest in 17 years.

The yen, considered a safe haven, gained 0.3% to ¥106.42 to the dollar as the Chinese data signaled that any resolution to the trade war was a long way off. Mirroring that view, the offshore yuan fell 0.4% against the dollar to 7.0337, erasing gains made the day before and remaining weaker than the 7/$ it reached last week.

In commodity markets, oil prices fell after the Chinese data from China and a rise in US crude inventories, erasing some of the gains made after Trump’s tariff delay. Brent crude was down 54c, or 0.9%, at $60.76 a barrel at 7.44am GMT, after rising 4.7% on Tuesday, its biggest percentage gain since December.

Reuters