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European shares subdued as weak China data adds to growth concerns

European stocks were subdued on Monday as weak economic data from China further clouded the global growth outlook.

Following the longest string of weekly losses for global equities since the 2008 financial crisis, Europe’s regional Stoxx 600 share index fell as much as 0.8 per cent in early dealings, before trimming its losses to trade down 0.1 per cent.

Futures contracts tracking Wall Street’s S&P 500 dipped 0.3 per cent, having sustained heavier falls in Asian and early European trading. Contracts on the Nasdaq 100 fell 0.5 per cent, signalling further declines ahead for more speculative tech stocks.

The FTSE All World share index has dropped more than 11 per cent since the end of March as soaring inflation has driven central banks to raise interest rates, with investors becoming concerned that large economies are not strong enough to withstand higher borrowing costs. The downward trend for stock markets has been punctuated by short-term rallies, however, as traders hunt for bargains in sold-off sectors.

“A big chunk of the global economy is basically contracting,” said Luca Paolini, chief strategist at Pictet Asset Management. “But [stock market] valuations are looking more attractive so there’s always people who will say the worst is behind us, let’s buy the market back.”

“It’s a pretty ugly combination of financial conditions tightening into slowing growth,” added Hani Redha, multi-asset portfolio manager at PineBridge Investments.

“In the near term the market is ripe for a relief rally,” he said, “but any bounceback is not sustainable, in our view.”

Data on Monday showed Chinese retail sales dropped 11.1 per cent in April from the same month last year as a wave of stringent coronavirus lockdowns across the country reduced demand. Industrial production, which analysts had expected to rise slightly, fell 2.9 per cent.

Meanwhile, Brussels on Monday cut its growth forecasts further for the euro area and lifted its inflation outlook to reflect the estimated economic impact of an energy crisis triggered by Russia’s invasion of Ukraine.

Lloyd Blankfein, senior chair of Goldman Sachs, told CBS News on Sunday there was a “very, very high risk” of a US recession. The world’s largest economy contracted unexpectedly in the first quarter of the year. Consumer price inflation is also running close to a four-decade high.

The US Federal Reserve earlier this month raised its main borrowing cost by 0.5 percentage points, while chair Jay Powell said moves of the same size “should be on the table at the next couple of meetings”.

European Central Bank president Christine Lagarde also signalled last week the institution was ready to drop its long-held policy of keeping interest rates in the currency bloc below zero.

In Asia, mainland China’s CSI 300 share index fell 0.8 per cent, while Hong Kong’s Hang Seng added 0.3 per cent and Tokyo’s Topix traded flat.

Brent crude oil dipped 0.6 per cent lower to $110.92 a barrel.

The yield on the 10-year US Treasury note, which moves inversely to the price of the benchmark debt security, fell 0.01 percentage points to 2.92 per cent.

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