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Losses on Wall Street sent global stocks tumbling on Tuesday as weak manufacturing data renewed investor concerns about a slowdown in the U.S. economy.
The S&P 500 index fell 1.4 percent, putting the blue-chip benchmark more than 1.5 percent below its all-time high hit in mid-July. Technology stocks fell even more, with the Nasdaq Composite losing 2.4 percent — the sharpest drop since the stock market crash in early August — and the Philadelphia Semiconductor index down more than 5 percent.
The Institute for Supply Management’s indicator of US manufacturing activity for August was slightly weaker than expected, falling for the fifth month in a row and heightening fears that the US could enter a recession.
The numbers were “disappointing” and “there was nothing encouraging in the data,” said Ian Lyngen, head of U.S. interest rate strategy at BMO Capital Markets.
The release of the ISM was closely watched by investors, as the previous month’s significantly lower than expected value contributed to the stock market collapse in early August.
Tuesday’s release comes ahead of Friday’s key U.S. non-farm payrolls figures, which could be a strong indicator of whether the Federal Reserve will cut its benchmark interest rate by a quarter or half a percentage point later this month.
Bank of America said a quarter-percentage-point cut remained the base case, but “a very weak August jobs report would change the picture by confirming recession fears.”
“History shows that the Fed would react aggressively even if inflation were slightly above target,” BofA said.
The monetary policy yield on the two-year US Treasury note fell 0.05 percentage point to 3.88 percent, while the yield on the ten-year note fell 0.06 percentage point to 3.85 percent. Yields fall when prices rise.
Across the Atlantic, the region-wide Stoxx Europe 600 index fell 1 percent, moving further away from its all-time high hit on Friday, while London’s FTSE 100 fell 0.8 percent.
The global oil benchmark Brent crude hit its lowest level of the year, falling 4.4 percent to $74.15 a barrel, while West Texas Intermediate, the U.S. benchmark, fell 3.7 percent to $70.81.
The price drop came amid speculation that an agreement to resolve the dispute between political factions in Libya could help resume production in the region.
According to broker Fearnley Securities, sentiment was further dampened by recent “sluggish purchasing managers’ index data for factories in China,” a major crude oil importer.
