Global stocks slide as investors fret over US slowdown

US stocks tumbled on Tuesday, as weak data on the state of the manufacturing sector renewed investor concerns about an economic slowdown.

The S&P 500 was down 1.7% in early afternoon trading on Tuesday, on track for its worst day since a bout of global volatility in early August.

Tech stocks, which have been a drag on the index in recent weeks, were once again the worst-performing sector, with chipmaker Nvidia dropping more than 8%.

The tech-dominated Nasdaq Composite fell 2.7%, and the Philadelphia Semiconductor index was down 6.9%.

Major indices were already dipping in early trading but the sell-off gathered pace after the Institute for Supply Management published its monthly gauge of US manufacturing activity.

The results were slightly weaker than economists had expected and showed activity contracting for a fifth consecutive month.

The numbers “underwhelmed” and “there wasn’t anything encouraging in the data”, said Ian Lyngen, head of US rates strategy at BMO Capital Markets.

The Vix index, popularly known as “Wall Street’s fear gauge”, rose from 15.6 to 18.3, its highest level in three weeks. The Vvix, which shows expectations of swings in the Vix itself, jumped from 94 to 116, suggesting investors were wary of further volatility.

The cautious mood was also reflected in government bond markets. The yield on the benchmark 10-year Treasury fell 0.06 percentage points to 3.85%, while the policy-sensitive two-year yield fell 0.04 percentage points to 3.88%.

The ISM release was being particularly closely watched by investors as a much weaker than expected survey last month was one of the sparks that helped start the global sell-off.

Crucial job market data approaching

Tuesday’s data comes ahead of more crucial labour market figures due to be published on Friday.

The non-farm payrolls report is widely seen as the most important data in helping to determine whether the US Federal Reserve will cut interest rates by a quarter or half of a percentage point later this month.

Bank of America said a quarter-point cut was the most likely outcome, but “a very weak August jobs report would change the game by validating recession fears”.

“History suggests that the Fed would respond aggressively, even if inflation is moderately above target,” said BofA.

“Nobody wants to be on the wrong side of what happens with payrolls,” said Dec Mullarkey, managing director at SLC Management.

He pointed out that some of the few sectors that were eking out gains on Tuesday afternoon were “classic defensives” such as consumer staples and utilities. “Risk aversion is taking over,” he added.

The US sell-off followed a weak day in European markets.

The Europe-wide Stoxx 600 index fell 1%, further retreating from Friday’s all-time high, while London’s FTSE 100 dropped 0.8%.

Brent crude, the global oil benchmark, hit its lowest level of the year, falling as much as 5% to $73.67 a barrel, while West Texas Intermediate, the US benchmark, slid by 4.5% to $70.25.

The falls came amid speculation that a deal to end a dispute between political factions in Libya would help to restore production in the region.

Souring sentiment further was the recent “sluggish factory purchasing managers’ index data out of China”, a major crude importer, said broker Fearnley Securities.

Written by: Ray Douglas in London and Nicholas Megaw in New York

© Financial Times