World Economy

World Stock Markets Drop

World Stock Markets DropWorld Stock Markets Drop

Global stock markets fell sharply Tuesday and Wall Street was set to open lower as gloomy economic data from China and Japan augured further uncertainty for investors after a brutal August.

Stocks in Asia and Europe traded sharply lower Tuesday after China released more gloomy economic data. With its manufacturing and service sectors slowing, Beijing will be unlikely to reach key growth targets, DW reported.

Stock markets have reacted with alarm to new figures that point to a hard landing ahead for the Chinese economy. An official monthly index of Chinese manufacturing released Tuesday reached a three-year low in another sign of slower-than expected growth, as China is hit by soft demand, overcapacity and falling investment. The survey of factory purchasing managers fell to 49.7 in August from 50.0 in July, indicating a contraction.

Even more worrying, China's services sector, which has been one of the bright spots as the economy slowed, also showed signs of cooling, a similar business survey said.

Europe's stock markets sank on Tuesday, dragged down by fears about the Chinese economy. Frankfurt's DAX 30 fell by 1.81% to 10,073.74 after the opening bell, down by over 3% in mid-morning trade.

The European markets followed the lead of Asian traders. China's Shanghai Composite Index dropped 1.6% to 3,155.15 after dipping nearly 5% earlier in the session. Japan's Nikkei 225 was also volatile, dropping 3.8% to 18,165.69. The Hang Seng in Hong Kong lost 0.7% to 21,507.07. South Korea's Kospi slid 1.4% to 1,914.23.

Australia's S&P/ASX 200 fell 2.1% to 5,097.40 and shares in Southeast Asia were also lower.

Weak Footing

The falling share prices and a yuan devaluation have also taken their toll on the Chinese economy. Many analysts believe Beijing will fall far short of its 7% growth target for this year.

Britain's FTSE 100 dropped 2.2% to 6,110.61 and Germany's DAX sagged 2.5% to 10,003.60. France's CAC 40 lost 2% to 4,558.76. US markets also looked set to start on a weak footing, with Dow futures down 1.9% and S&P futures 2% lower. The S&P 500 finished August down 6.3%, its worst showing since May 2012.

Benchmark US crude fell $1.01 to $48.19 in electronic trading on the New York Mercantile Exchange. It had surged $3.98, or nearly 9%, to $49.20 on Monday after the US energy department cut its oil output estimate.

While a measure of calm has returned to these markets recently and they "have seen relief rallies, many of the underlying negative fundamentals are still in place," Nariman Behravesh, chief economist for IHS Small Business Jobs Index, said in a report.

"As a result, the downside risks for most commodity prices, exchange rates, and stock markets are likely to persist for some time, while growth in many parts of the world, especially in emerging markets, is likely to deteriorate further."

Stormy September

September will be the same old negative, scary, correction-like price action on Wall Street.

The first day of September on Wall Street looks a lot like the abysmal trading action in August–the worst month for the Dow since May 2010 and the stock market's first 10% correction in four years–with investors bracing for more wild swings and losses as the Dow is trading down more than 300 points in pre-market trading after a weak manufacturing report out of China.

The broader Standard & Poor's 500-stock index is down 2% in pre-market trade.

Wall Street looks set for another rough day, following another stock market selloff that began in Asia on the weak economic news out of Beijing, and then spread to Europe. In midday trading in Europe, shares were down more than 2% in London, Germany and France.

Investors looking for a respite from the selling that pushed the Dow Jones industrial average down 6.6% in August and the S&P 500-stock index down 6.26%–its worst monthly plunge since May 2012–are getting more of the same violent downward price action to kick off the first day of trading in September.

Wall Street had already been bracing for a volatile September, as the ninth month of the year has historically been one of the worst months for the stock market. September has been the worst-performing month for the Dow in the past 50 and 100 years, data from Bespoke Investment Group show.