Global stocks fall as PMI surveys disappoint, oil gains more than 1%

Traders work at the Frankfurt Stock Exchange in Frankfurt, Germany - Reuters

LONDON (Reuters): Global shares dipped on Monday as weaker than expected economic surveys added to investor worries over the unresolved US-China trade dispute’s effects on the world economy, while oil gained more than 1% as Middle East tensions remained elevated.

European stock markets opened lower as surveys of purchasing managers from France, Germany and the euro zone came in weaker than expected. The pan-European STOXX 600 index was down 0.9%.

Eurozone business growth has stalled this month, a survey showed on Monday, less than two weeks after outgoing ECB President Mario Draghi pledged indefinite stimulus to revive the bloc’s ailing economy.

The euro fell 0.4% to $ 1.0966 after the German Purchasing Managers’ Index (PMI) release, its lowest in over a week against the dollar.

Germany’s DAX index hit its lowest level in nearly two weeks, down 1.35% after the euro zone data, while France’s CAC 40 fell nearly 1%.

The MSCI All Country World Index, which tracks shares across 47 countries was down 0.25%.

Oil prices rose on doubts about how fast Saudi Arabia can restore full crude output after an attack earlier this month on its largest processing facility.

Brent crude futures — the international benchmark for oil — rose to as much as $ 65.50 per barrel, a gain of over 1%. They last traded half a percent higher at $ 64.59.

“Considering that Germany already contracted in Q2, today’s numbers effectively increase the risk of another negative quarter in Q3, which by definition would constitute a technical recession,” said XM investment analyst Marios Hadjikyriacos.

“It seems that the malaise in manufacturing — owed to trade and Brexit worries — has started to spread to the much larger services sector as well.”

Most Asian share markets slipped as investors waited for more clarity on US-China trade talks.

Market sentiment was fragile, with civil unrest in Hong Kong and worries a trade deal between the United States and China could take a long time to materialise. Moves were further exaggerated by low volumes as Japanese markets were shut for a public holiday.

MSCI’s broadest index of Asia-Pacific shares outside Japan down 0.2% at 510.04 points. It is still up more than 3% so far in September.

US stock futures — earlier up 0.4% — sank after the PMI data in Europe. S&P 500 E-mini futures were last down 0.2%.

Trade concerns

Over the weekend, the US Trade Representative’s office issued a brief statement characterising the two days of talks with China as “productive”. It added that a principal-level trade meeting in Washington would take place in October, as previously planned.

China’s Commerce Ministry, in a brief statement, described the talks as “constructive”, and said they had also had a good discussion on “detailed arrangements” for the high-level talks in October.

Additionally, the United States removed tariffs from more than 400 Chinese products in response to requests from US companies.

Despite the improved tone, markets still remain unconvinced about the possibility of an imminent deal.

“There are real concerns about the impact on economies from the trade dispute,” said Michael McCarthy, Sydney-based strategist at CMC Markets.

“People are probably getting an idea that this will be a long negotiation. And the longer it lingers the more impact it will have economically.”

Investors were rattled by news on Friday that Chinese officials unexpectedly cancelled a visit to US farms this week following their two days of negotiations in Washington.

In the Middle East, news that five Yemeni civilians were killed in air strikes by the Saudi-led coalition further soured investor appetite.

US crude oil futures rose to $ 58.36 a barrel, a rise of 0.5%.

The Pentagon has ordered additional troops to be deployed in the Gulf region to strengthen Saudi Arabia’s air and missile defences following an attack on Saudi oil facilities.

US Secretary of State Mike Pompeo said on Sunday the additional troops are for “deterrence and defence” and that Washington aimed to avoid war with Iran.

Markets will closely watch September manufacturing activity surveys due from the United States later in the day.

In currencies, the dollar gained 0.25% against a basket of currencies.

The British pound was 0.3% lower at $ 1.2431. A ruling from Britain’s Supreme Court is due this week on whether Prime Minister Boris Johnson acted unlawfully in suspending parliament for five weeks.