Global Equities Selloff despite Strong U.S. Data

Stocks around the world turned sharply south even as economic data from the U.S. showed strength.

Stocks around the world turned sharply south even as economic data from the U.S. showed strength.

Both Hong Kong and Shanghai face bear market conditions, with the rout in Chinese equities exacerbated by negative factory data. The Markit China Manufacturing PMI fell to 47.1 for August, the lowest reading in over 6 years. That represented a 1.5% decline from July’s reading. That reading, which contradicts official GDP growth figures of 7% annualized growth for the first half of 2015, caused the Shanghai Composite Index to fall nearly 5%, bringing the index to its lowest point for the year.

The Shanghai Composite has shed over 30% of its value since its peak earlier in the year, with all of those losses occurring in just two months.

In Japan, the Nikkei 225 also fell 3% in trading during Friday’s session, marking its third day of declines in a row. That fall occurred despite a massive bond-buying program by the Bank of Japan, which pushed equities higher earlier in the year. However, the index remains up 11.6% year to date thanks to that bond-buying program, although the Japanese yen has lost 2.4% of its value in 2015 due to the monetary expansion.

European Woes

European markets also saw volatility, while Greece saw political upheaval by the sudden departure of Syriza party Prime Minister Alexis Tsipras. The announcement will trigger snap elections, and helped Greek stocks to fall by nearly 3%. Equities throughout Europe also declined, with the Eurostoxx 50 falling 1.3% on Friday.

However, European equities remain 8% higher for the year, although certain exceptions, notably Greece, have not enjoyed in those gains.

As with Japan, those gains have come at the expense of the currency thanks to an aggressive act of quantitative easing that is designed to increase the money supply and improve liquidity. The euro has fallen nearly 7% year-to-date, and most QE is coming for the remainder of the year.

European countries have reported lackluster GDP growth. Last week, Eurostat announced GDP growth slowed to 0.3% in the second quarter, a 0.1 percentage point drop from the prior quarter. Germany’s growth rate was among the highest at 0.4%, while France’s economy stagnated and Greece rose 0.8%. Spain saw 1% growth, one of the best performers of the larger economies in the EU.

American Strength

American stocks turned sharply south on Wednesday and Thursday, with the S&P 500 losing over 2% of its value on Thursday. The sell-off has caused the index to turn negative year-to-date, with some pundits warning that a bear market has begun.

These trends occurred despite several positive data releases in the last two days. On Thursday, the Philadelphia Federal Reserve announced that manufacturing activity rose, business conditions improved, and employment rose for manufacturers. Existing home sales were also released on Thursday, and rose 2%, far above consensus. At the same time, weekly initial jobless claims rose 4,000 although analysts expected a small decline; the four-week moving average rose 5,000 to 271,500.