China, Germany Intensify Fears About Global Economy
Business + Economy

China, Germany Intensify Fears About Global Economy


Global stocks fell again Wednesday after yet more downbeat economic figures and the surprising news that Germany failed to raise as much money as it was looking for in an auction of its supposedly top-rated debt.

Following figures Tuesday that showed the U.S. economy grew less than anticipated in the third quarter, the bad news has piled up for investors. With China's economy suffering a fall in manufacturing activity as well, there are clear signs that the eurozone economy is heading back into recession and that's knocked sentiment in stock markets again.

Germany's failure to raise as much money as it hoped in its latest bond auction added to investor concerns that even Europe's biggest economy may not be immune from a debt crisis raging across the continent. The country's Financial Agency said Wednesday that its latest €6 billion ($8.1 billion) auction of 10-year bonds, at a record-low interest rate, met with only 60 percent demand. It blamed "the extraordinarily nervous market environment" for the weak demand.

The grim round of news came amid ongoing stresses in Europe's debt crisis and mounting speculation that the U.S. may see its credit rating downgraded again in the not-too-distant future following lawmakers' failure to agree on a deficit reduction plan.

"The barrage of bad news shows no sign of relenting, and with many wanting to reduce risk ahead of markets closing for the Thanksgiving holiday tomorrow, the resulting flight to safety is of little surprise," said Yusuf Heusen, sales trader at IG Index.

In Europe, the FTSE 100 index of leading British shares closed down 1.3 percent at 5,139.78, while Germany's DAX fell 1.4 percent to 5,457.77. The CAC-40 in France ended 1.7 percent lower at 2,822.43.

U.S. stocks opened lower, too. The Dow Jones industrial average was down 1.8 percent at 11,291, while the broader Standard & Poor's 500 index fell 2 percent to 1,165.

Wall Street's performance ahead of the four-day Thanksgiving weekend was hampered by figures showing that jobless claims last week rose by 2,000 and durable goods orders in October fell by 0.7 percent.

Separate figures showing that personal spending inched up only 0.1 percent during the month also did nothing to allay fears that the U.S. economic recovery remains muted.

"These figures entwined with fears over the U.S.'s triple A credit rating are leading economists to quash their anticipations of solid growth in the current quarter," said David Corben, a financial trader at IG Index.

In Europe, the concern is that growth will soon give way to recession.

That sense was evident in the findings of a closely watched survey from the financial information company Markit. Its monthly survey showed the eurozone contracted for the third month running in November and that the deteriorating economic picture is not just confined to debt-stressed countries such as Greece.

Although its monthly composite purchasing managers index — a broad gauge of business activity — rose to 47.2 in November from 46.5, it remains below the 50 mark, the threshold between expansion and contraction.

Further grim news emerged with the announcement that eurozone industrial orders collapsed by a massive 6.4 percent in September from the previous month. Though this data is historically volatile — one big Airbus order can cause big swings — the figures provide further uncomfortable reading for politicians battling to get a grip on the debt crisis.

The euro unsurprisingly took a battering in the wake of the figures and the German bond auction results, plunging 1.3 percent to $1.3335.

Earlier, sentiment had been knocked by a manufacturing survey from HSBC indicating that China's industrial sector may be contracting. Its main manufacturing gauge fell to 48 in November from 51 in October — its sharpest fall since March 2009. As in the eurozone survey, any reading below 50 indicates contraction from the previous month.

Indications that the world's second biggest economy and one of the key engines of growth may not be as supportive to the global economy as it has over the past few years affected the Asian session badly.

Hong Kong's Hang Seng slid 2.1 percent to 17,864.43. South Korea's Kospi lost 2.4 percent to 1,783.10, and Australia's S&P/ASX 200 shed 2 percent to 4,051. Mainland China's Shanghai Composite Index fell 0.7 percent to 2,395.07, posting its sixth straight session of losses. Japanese stock markets were closed for a public holiday.

Oil prices tracked equities lower. Benchmark oil for January delivery was down $2.24 to $95.77 a barrel in electronic trading on the New York Mercantile Exchange.