By Callum Keown
European stock markets edged down on damaging German economic data on Friday.
The Stoxx 600 (STOXX:XX:SXXP) slid 0.4% and the DAX (XEX:DX:DAX) fell 0.2% as markets opened softer after Thursday’s flat day of trading, when the Fourth of July holiday kept U.S. markets quiet.
Mining stocks have also been under pressure after China’s major steel companies formed a group to investigate the recent record surge in iron ore prices, taking the FTSE 100 (FTSE:UK:UKX) down 0.3%.
European markets tumbled further after strong U.S. jobs data put an expected Federal Reserve interest-rate cut, possibly as soon as later this month, in doubt.
What’s moving the market?
German manufacturing orders plunged across all sectors, mounting pressure on the European Central Bank to cut interest rates further.
Industrial orders fell 2.2% month-on-month in May, worse than market expectations. Annually new orders were down 8.6%, the sharpest year-on-year fall since 2009.
Carsten Brzeski, chief economist at ING Germany said: “Today’s devastating new orders data just undermined any hopes for an industrial rebound.”
“Combined with the weakest June performance of the labour market since 2002 and disappointing retail sales, today’s new orders wrap up a week to forget for the German economy,” he added. “The fear factor is back.”
ECB governing council member Olli Rehn further raised expectations of fresh stimulus in Thursday remarks, saying the eurozone slowdown was no longer temporary and that the central bank had to act to fulfil its mandate.
The German 10-year bund (XTUP:BX:TMBMKDE-10Y) was flat, having dropped Thursday below the ECB’s deposit rate for the first time.
As for U.S. data, after a lackluster reading of 75,000 jobs created in May, the economy added a robust 224,000 new jobs in June, calming worries about economic growth in a record 11th year of expansion.
But ongoing U.S. trade disputes and a faltering global economy have dampened exports, wounded American manufacturers and undermined the confidence of businesses and consumers.
Even with solid job creation, futures markets are pricing in a near-certain reduction of interest rates when the Federal Reserve concludes its two-day policy meeting on July 30-31. How aggressively, however, remains an open debate; a quarter of the market expects a half-percentage point cut to a range of 1.75%-2%, from the current 2.25%-2.50%.
Which stocks are active?
Shares in German lighting group Osram Licht (ETR:XE:OSR) climbed 1.9% after the company said late on Thursday it supported a multibillion-euro takeover from U.S. private equity firms Bain Capital LLC and Carlyle Group. The deal for the Siemens spin-off firm is set to be worth around $3.8 billion.
Building supplier SIG (LON:UK:SHI) slipped 5.4% as weakness in the U.K. construction sector led to a double digit decline in like-for-like sales growth. The company said trading conditions remained challenging due to a marked deterioration in construction activity this year.
Anglo American (LON:UK:AAL) led the FTSE 100 fallers in early trading as mining stocks dragged the U.K.’s blue-chip index down as Chinese steel firms launched a probe into surging iron ore prices. The mining giant weakened 2.3%, while rivals Rio Tinto (LON:UK:RIO) and (LON:UK:EVR) lso dropped more than 2%.