Main European stocks index hit lowest point in over six months over US recession fears

The main European stocks index hit its lowest in over six months on Monday, 5 August as fears of a slowdown in the world's largest economy knocked equities globally, with energy and utility stocks at the forefront of a broad-based market slide.

The STOXX 600 (.STOXX), closed 2.2% lower, but off the day's low. The continent-wide index logged its steepest three-day decline since June 2022, closing below the key 500-point mark for a second day.

The "fear gauge" Euro STOXX volatility index (.V2TX), hit its highest level since March 2022, reflecting a sharp rise in investor anxiety. Risk-off sentiment prevailed on fears that the United States could tip into recession, sharply hitting Wall Street and equity markets elsewhere, and steering hopes of interest rate cuts to stimulate economic growth. However, news of a rebound in U.S. services sector in July offered some relief to investors, helping U.S. and European stocks pare some of the day's losses.

Among major European bourses, Germany's DAX (.GDAXI), France's CAC 40 (.FCHI), Britain's FTSE (.FTSE) and Spain's IBEX 35 (.IBEX) fell between 1.4%-2.3%, hitting multi-month lows intraday."Traders were already concerned over the global demand growth outlook," said David Morrison, senior market analyst at Trade Nation. "Add this (higher likelihood of U.S. slowdown), with the economic uncertainty over China and Europe, can only suggest weaker demand for oil and other energy products going forward."

Economic concerns back home were also underscored by euro zone business activity growth stalling last month.Traders now see a 78% chance of a 50-basis-point Federal Reserve rate cut in September, while bets of a second cut by the European Central Bank stand at 88%, according to LSEG data.In a bruising session for all the European sectors, energy (.SXEP), hit a six-month low, tracking lower oil prices, while utilities (.SX6P), touched an over one-month low. Banks (.SX7P), also tumbled to a four-month low on U.S. recession fears.Meanwhile, technology (.SX8P), and chemicals (.SX4P), were some of the least hit sectors, although down around 1% each.Among single movers, Europe's largest copper producer Aurubis (NAFG.DE), slumped 12% after a third-quarter pre-tax profit miss.On the flip side, Infineon (IFXGn.DE), rose 1.3% following job cut plans, while OCI (OCI.AS), jumped 13% on plans to sell its Clean Ammonia project in Texas to Woodside Energy for $2.35 billion.Galderma (GALD.S), rose 1.3% after L'Oreal (OREP.PA), said it would acquire a 10% stake in the Swiss skincare firm.

US stock markets also fell sharply on 5 August following falls in Europe and Asia as fears rose that the American economy is heading for a slowdown.

The technology-heavy Nasdaq index opened 6.3% lower after a sharp decline at the end of last week, but pared its losses during the day.

The other main US indexes also opened sharply down, while stock markets in Europe and Asia plunged with Japan's Nikkei 225 falling by some 12.4%.

It comes after weak jobs data in the US on 2 August sparked concerns about the world's largest economy.

The US Federal Reserve also held off cutting interest rates last week - something that typically boosts growth - in contrast to other central banks such as the Bank of England.

And there has been concern that shares in big technology companies, particularly those investing heavily in artificial intelligence (AI), have been overvalued and are now facing difficulties.

Chipmaker Intel announced major layoffs last week as well as disappointing financial results, and there is speculation that its rival Nvidia, which makes AI chips, will delay its latest product launch.

At the end of the trading day in New York:

• The Dow Jones index, which features America's 30 biggest listed companies, was down 2.6% having pared its losses, while the tech-heavy Nasdaq was 3.4% lower and the S&P 500 was down 3%.
• Shares in big-hitting tech stocks were hit hard, with Nvidia down 6.3%, Amazon 4.1% lower and Apple down 4.8%.
• In Europe, the CAC-40 in Paris trimmed earlier losses to end 1.4% lower while Frankfurt's DAX and the UK's FTSE 100 lost about 2% each.

Doubts about US economy

The market rout began on 2 August after weaker-than-expected jobs data from the US fuelled speculation that its economy is slowing.

In July, US employers added 114,000 roles, far fewer than expected while the unemployment rate ticked up from 4.1% to 4.3%.

The figures raised concerns that a long-running jobs boom in the US might be coming to an end. It also stoked speculation about when - and by how much - the Federal Reserve will cut interest rates.

Simon French, chief economist at Panmure Liberum, said it was not yet clear if the jobs figures were an aberration because of Hurricane Beryl, a Category 5 storm that hit parts of the Gulf Coast of the United States in July, or because it was the first sign that companies were hiring fewer workers.

The most recent data showed that the US economy grew at an annual rate of 2.8% in the three months to the end of June, much stronger than most developed countries.

Shanti Kelemen, chief investment officer at M&G Wealth, told the BBC's Today programme it was hard to say whether the US would tip into recession or not.

"You can pick out evidence to create a positive story, you can also pick out the evidence to create a negative story," she said.

"I don’t think it universally points to one direction yet.”

The rout in US markets has spread globally amid fears of contagion.

As the Nikkei plunged in Japan, stock markets in Taiwan, South Korea, India, Australia, Hong Kong and Shanghai all tumbled by between 1.4% and 8% on5 August.

Japan's problems stem in part from its currency, the yen, which has been strengthening against the US dollar since the Bank of Japan raised interest rates last week.

It has made stocks in Tokyo - and Japanese goods in general - more expensive for foreign investors and buyers.

At the same time inflation in Japan rose by more than expected in June while the economy shrank in the first three months of the year.

(Sources: Reuters, BBCNews)