The FTSE 100 (^FTSE) and European stocks took a hit on Wednesday as growth concerns swept through global markets, triggered by a sharp downturn in the US on Tuesday. Investors were spooked after major US indices saw significant losses, sparking fears of a broader economic slowdown.
On Tuesday, the S&P 500 (^GSPC) fell more than 2%, while the tech-heavy Nasdaq (^IXIC) dropped nearly 3.3%, marking their steepest daily declines since early August. The sell-off was driven by weak manufacturing data from the United States, raising concerns about the health of the world's largest economy.
The Institute for Supply Management’s (ISM) monthly factory survey revealed that manufacturing activity contracted at a moderate pace in August. The report showed declines in new orders, production output, and employment levels, indicating a slowdown in economic momentum as the summer came to an end.
Asian Markets and European Indices Follow Suit
The negative sentiment wasn’t confined to the US. Japan’s Nikkei 225 (^N225) also experienced a sharp decline, falling 4.2% to its lowest level since mid-August. This marked the index's largest one-day drop since its dramatic 12% plunge on 5 August, which was its biggest fall since the 1987 market crash.
“Summer’s over, and the bears are back with a bang,” noted Michael Brown, Senior Research Strategist at Pepperstone, highlighting the shift in market sentiment as investors brace for potentially more challenging economic conditions ahead.
In Europe, London's FTSE 100 was down 0.7% in early trading, reflecting the broader market concerns. Germany's DAX (^GDAXI) and France's CAC 40 (^FCHI) also dipped 0.7%, while the pan-European STOXX 600 (^STOXX) fell 1%, underscoring the widespread impact of the US downturn on global markets.
US Futures and Currency Markets
Looking ahead, Wall Street appears poised for further declines. Futures contracts tied to the S&P 500 (ES=F), Dow Jones (YM=F), and Nasdaq (NQ=F) were all trading in the red, suggesting that the bearish momentum could continue as the trading day unfolds.
On the currency front, the British pound remained flat against the US dollar, trading at 1.3115 (GBPUSD=X). This stability in the currency markets comes amid ongoing concerns about the cost of living crisis, which has also affected consumer behaviour in the UK.
Consumer Trends: Shrinkflation and Pension Concerns
In related news, UK shoppers are increasingly facing the phenomenon of ‘double-dip shrinkflation,’ where the size of popular products is reduced while prices either stay the same or increase. This trend is adding to the financial strain on consumers already grappling with rising costs.
Moreover, pension savings required for a comfortable retirement have surged as the cost of living crisis deepens. Many individuals are now facing the challenge of needing to save more to maintain their standard of living in retirement, further highlighting the economic pressures facing households.
As we move into the autumn months, markets are clearly grappling with a range of economic challenges. With growth fears mounting and key economic indicators pointing to a slowdown, investors will need to stay vigilant and adaptable in the face of these shifting dynamics. The coming weeks will likely provide more clarity on whether this downturn is a temporary blip or the start of a more prolonged economic slump.
