European stocks fall as economic data and earnings signal slowdown in goods demand

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European stocks and Wall Street futures fell on Tuesday, as weak economic data and mixed corporate earnings added to signs of a slowdown in global demand for goods.

The region-wide Stoxx Europe 600 index fell 0.7 per cent, extending early morning losses, while Germany’s Dax lost 0.9 per cent and France’s Cac 40 gave up 0.8 per cent. The consumer goods sector led declines, down 1.2 per cent.

In the US, futures contracts pointed to Wall Street’s benchmark S&P 500 opening 0.3 per cent lower, while contracts tracking the tech-focused Nasdaq 100 fell 0.5 per cent.

Shares of Pfizer dropped 1.1 per cent in pre-market trading, after the US drugmaker said its revenue more than halved in the second quarter as demand for Covid-19 products fell sharply.

Industrial bellwether Caterpillar bucked the downward trend: its shares gained 1 per cent ahead of the US open after the company reported that strong demand and higher prices helped it beat earnings expectations in the second quarter.

US stocks clocked their longest monthly winning streak in two years in July, as signs of falling inflation and resilient growth raised investors’ hopes that the US Federal Reserve could complete its monetary tightening cycle without causing a recession.

Attention will turn to US labour market and manufacturing sector data coming later in the day, as investors hoped to gain more insight into the Fed’s future path for interest rates.

Meanwhile, HCOB’s final eurozone manufacturing purchasing managers’ index fell to 42.7 in July from 43.4 in the previous month, hitting its lowest level since May 2020 when the region’s economy was hit by the onset of the Covid-19 pandemic.

The index measuring factory activity in Germany, the eurozone’s largest economy, fell to 38.8 from 40.6 in the previous month. A reading below 50 means the majority of respondents reported a contraction in activity.

The declines echoed markets in China, where the CSI 300 index of Shanghai- and Shenzhen-listed stocks fell 0.4 per cent and Hong Kong’s Hang Seng lost 0.3 per cent, as investors worried about the country’s stalled post-pandemic recovery.

The Caixin manufacturing purchasing managers’ index, a private sector survey tracking monthly changes in factory activity, slipped to 49.2 in July from 50.5 in June, undershooting analysts’ forecasts of 50.3.

The politburo, China’s top decision-making body, had earlier vowed to extend further support to prop up the world’s second-largest economy but offered few details, testing investors’ nerves.

“This limited policy support means that China’s recovery probably will continue to be ‘tortuous’, uneven and drawn out,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.

Elsewhere in Asia, Japan’s Topix index was up 0.6 per cent, and South Korea’s benchmark Kospi rose 1.3 per cent. 

Slowing inflation prompted Australia’s central bank to keep its key interest rate unchanged for the second consecutive meeting, at 4.1 per cent, defying market forecasts of a 0.25 percentage point increase. The S&P/ASX 200 gained 0.5 per cent.

The meeting came a week after central banks in the US and Europe raised rates but refrained from their usual hawkish guidance in a sign that the global tightening cycle could soon draw to a close.

“We still have key macro events this week . . . but [the] market seems content in its view that the central banks are close to the end of their rate hiking policy,” said Mohit Kumar, chief Europe financial economist at Jefferies.