European equities slip after drops in China and Hong Kong

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Equities updates

European stocks edged lower after a stock sell-off in China and poorer than expected retail sales out of the US.

The regionwide Stoxx 600 inched down 0.2 per cent in afternoon trading. France’s Cac 40 fell 0.6 per cent and Germany’s Dax slipped 0.2 per cent. London’s FTSE 100 rose less than 0.1 per cent, helped by a rally in shares of mining heavyweight BHP Group. Index futures tracking the US S&P 500 were down 0.5 per cent, while those which follow the tech-focused Nasdaq were trading 0.6 per cent lower.

The muted trading in Europe came after a choppy session in Asia, in which Hong Kong’s Hang Seng shed 1.7 per cent and China’s CSI 300 dropped 2.1 per cent. Stocks of automotive company Geely and tech giants Tencent and Alibaba were among the biggest fallers in Hong Kong, all shedding at least 3 per cent of their price.

Meanwhile, the New Zealand dollar slumped 1.3 per cent against the US dollar to $0.6927 after Prime Minister Jacinda Ardern announced a three-day lockdown following detection of the first community spread of coronavirus since February.

The market jitters in Asia highlight the growing unease among some traders and investors over slowing growth in China and the spread of the Delta variant of coronavirus.

Still, many global markets remain near all-time highs, with the US S&P 500 having now doubled from the closing low it hit during the market turmoil of March 2020.

A report released on Tuesday underscored how consumption, which accounts for about 70 per cent on US output, remains choppy.

US retail sales fell 1.1 per cent in July from June, worse than the consensus expectations among economists polled by Bloomberg for a 0.3 per cent fall. A core reading that strips out several volatile components known as the “control group” slipped 1.1 per cent, also much worse than the 0.2 per cent dip economists had forecast.

Ian Shepherdson, chief economist at Pantheon Economics, said the numbers were not as bad as they looked on the surface and that several one-off factors may have had an influence.

“It’s impossible to separate the impact of the fading stimulus boost from the possible hit due to the Delta variant, which began to hit real-time indicators like restaurant diner and airline passenger numbers in late July,” he said. “The Delta hit likely will be bigger in August, so we have to scale back our hopes for third quarter consumption quite sharply”.

The data follow a survey from the University of Michigan that showed consumer sentiment cooled sharply early this month.

Federal Reserve chair Jay Powell will also be giving a town hall late on Tuesday, which will be closely watched by investors keen to have some insight into the central bank’s thinking on monetary policy.

“What makes Powell’s voice so relevant . . . is that his statements generally reflect the consensus within the [Federal Open Market Committee],” said Thu Lan Nguyen, currency analyst at Commerzbank. “Powell may provide a somewhat clearer direction on tapering today.”

Yields on US 10-year Treasuries, which move inversely to price, fell 0.01 percentage points on Tuesday to 1.25 per cent, extending a recent dip. Nevertheless, they remain up in the year to date, compared with 2020’s final close of 0.912 per cent.

Oil prices continued to track lower, as concerns over spikes in the Delta variant of coronavirus hit demand. Brent crude, the global benchmark, was down 0.5 per cent at $69.20 a barrel. The US benchmark, West Texas Intermediate, fell 0.6 per cent to $66.91 a barrel.

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