European Shares Fall as Sell-Off Continues, Volatile Week Expected -- Update

By Adam Whittaker

European shares fell in early morning trading, following Asian markets lower amid concerns of a possible hard landing for the U.S. economy.

The STOXX Europe 600 fell 2.4%, U.K.'s FTSE 100 2.2%, France's CAC 40 2.3%, and Germany's DAX was down 2.6% late morning.

U.S. stock futures pointed to a sharply lower open, with futures for the S&P 500 down 2.5% and futures for the Dow Jones Industrial Average down 1.5%, while Nasdaq-100 futures fell 4.1%.

The sell-off spread from Asia, triggered in part by fears of a weakening U.S. economy, after U.S. jobless claims rose unexpectedly late last week. Japan's Nikkei posted its biggest single-day decline since 1987, closing 12.4% down on Monday.

The abrupt global sell-off suggests a significant loss of confidence--even though it is unclear whether the softer U.S. data is in line with a benign slowdown in growth, or suggests a real hard landing and recession, Kallum Pickering, chief economist at Peel Hunt, said in a note.

The sell-off could have been accentuated by over-valued U.S. tech stocks and the market response to Wednesday's surprise increase in Japanese interest rates, which boosted the yen, Pickering said.

In Europe, STOXX Europe 600 tech index was down 2.6% late morning, after falling earlier by as much as 5.2%.

While the near-term outlook for stocks seems uncertain, markets increasingly expect a 125 basis points cut in U.S. interest rates by the end of the year, according to Refinitiv data.

Market sentiment has dramatically changed in just one month, from high confidence of no interest-rate cut in the U.S. this year to a market that is now pricing in five rate cuts by the Federal Reserve by year-end, said Saxo's strategy team.

"The short-term outlook is right now driven by risk management policies kicking into gear across many institutional investors," it said, adding that the medium-term outlook will be determined by incoming macro figures.

U.S. futures suggest markets may decline further before finding support, said Derren Nathan, head of equity research at Hargreaves Lansdown.

"The coming months will be a testing time with economic and political uncertainty weighing on the market, as the U.S. heads towards an increasingly unpredictable election," Nathan said.

Emese Bartha in Frankfurt contributed to this article.

Write to Adam Whittaker at [e-mail]

(END) Dow Jones Newswires

08-05-24 0614ET