Global stocks sell off as economic fears mount

Weak US data combines with Brexit and other concerns to knock markets

Investors in US markets feared that poor jobs data could spill over into weaker spending. Photograph: Getty

Investors in US markets feared that poor jobs data could spill over into weaker spending. Photograph: Getty

 

Global stocks sold off heavily on Wednesday after poor US jobs data compounded a string of weak manufacturing reports and geopolitical concerns, a pile-up of risks that sets the stage for a rocky fourth quarter.

With the UK in the throes of Brexit talks with the EU, its benchmark FTSE 100 closed more than 3 per cent lower, for its worst day since 2016. The Iseq in Dublin finished 1.88 per cent weaker.

Major US stock indices were also down in the New York morning. The S&P 500 was off 1.8 per cent and the technology-heavy Nasdaq Composite was down 1.7 per cent.

Investors crowded into the safest corners of the US stock market, buying up utilities, real estate, consumer staples stocks, the only sectors in positive territory. Energy stocks dropped by the most, shedding 9 per cent, followed by healthcare stocks, which slipped 6 per cent.

With the consumer accounting for 70 per cent of the US economy, investors feared that poor jobs data could spill over into weaker spending, said Liz Young, chief market strategist for BNY Mellon Investment Management.

“If the labour market starts to weaken and we start to see lay-offs, then the consumer will start to get nervous,” Ms Young said.

Private employers added 135,000 jobs last month, according to payrolls processor, compared with a downwardly revised 157,000 in August – the figure for that month had previously been recorded at 195,000.

The September figure was the weakest in three months, missing economists’ expectations for 140,000, according to a Reuters survey. On Tuesday, a US manufacturing survey showed its weakest reading in a decade.

Tug of war

“The market is grappling with this intellectual tug of war,” Ron Temple, head of US equities at Lazard Asset Management. “On the positive side, the vast majority of the consumer data still looks pretty good. On the negative side, there is this global industrial slowdown.”

Stocks fell across Europe. The Dax index of German blue-chips shed 2.5 per cent, while the continent-wide Stoxx 600 was 2.6 per cent lower.

“Investors are responding to Boris Johnson saying he will go for a no deal Brexit again this morning,” said Max Gokhman, head of asset allocation for Pacific Life Fund Advisors. The whole situation will get more volatile as we get closer to the October 31st deadline.”

The uncertain geopolitical outlook also weighing on investor confidence in the US and Europe, said David Lafferty, chief market strategist at Natixis Investment Managers.

“If you were sitting around for some geopolitical good news to offset the softness in the macro data, that isn’t happening,” Mr Lafferty said. “Things are getting dicier for Trump and impeachment. [Elizabeth] Warren is surging in the polls and Boris Johnson is continuing to threaten a hard Brexit.”

The benchmark 10-year US Treasury yield fell a further 4 basis points on Wednesday, to 1.59 per cent, and futures markets indicated traders’ increasing expectations of another rate cut by the Federal Reserve at its meeting at the end of this month.

“It seems like the manufacturing data really spooked people,” said Jon Hill, an interest rate strategist at BMO Capital Markets. “It was really bad. Then ADP today didn’t change the narrative. It confirmed the slowing pace of job growth.” – Copyright The Financial Times Limited 2019