European stock markets closed sharply lower yesterday, hit by a strong far-right showing in French presidential polls, weak Chinese manufacturing data and persistent eurozone debt tensions.
Dealers said the recent drift lower extended into Asian trade which then set Europe up for a difficult day after Chinese data showed manufacturing still in negative territory despite a slight improvement.
The surprisingly strong vote for the National Front, at 18 per cent, in first-round French presidential polls muddied the waters after incumbent Nicolas Sarkozy was edged out by Socialist Francois Hollande, 29 to 27 per cent.
The prospect remains that Mr Hollande will win the May 6 second round but there is much soul searching over what Sunday’s vote may mean for future policy. News that Spain is now officially back in recession stoked fears the eurozone debt crisis is far from over, encouraging investors to caution.
In Paris, the CAC 40 index slumped 2.83 per cent to 3,098.37 points as Frankfurt’s DAX 30 lost 3.36 per cent to 6,523.00 points and London’s benchmark FTSE 100 index of top companies shed 1.85 per cent at 5,665.57 points.
Other markets were equally badly hit, with Milan slumping 3.83 per cent and Madrid down 2.76 per cent. In Amsterdam, stocks lost 2.56 per cent after the Dutch coalition government fell when it could not agree on spending plans aimed at stabilising the strained public finances – a problem which has forced a change in power in many European countries.
“Two major factors are dragging down the markets ... the (data) for China which is still weak ... and the results of French presidential elections, with a Socialist not necessarily a darling of the financial markets,” Gekko Global Markets trader Anita Paluch said.
The HSBC China manufacturing purchasing managers index rose to a two-month high of 49.1 in April from 48.3 in March but was still below the 50 boom-or-bust line.
The move higher “suggests that the earlier easing measures have started to work and hence should ease concerns of a sharp growth slowdown,” HSBC chief economist for China Qu Hongbin said.
However, “the pace of both output and demand growth remains at a low level in a historical context and the job market is under pressure. This calls for additional easing measures in the coming months,” Mr Qu added.
Eurozone PMI figures meanwhile showed private sector activity sank at the fastest rate in five months in April, indicating the 17-nation bloc faces a longer recession than previously thought.
Meanwhile US oil prices slipped yesterday as downbeat Chinese data and ongoing eurozone uncertainty cast doubt on the strength of global energy demand.
New York’s main contract, West Texas Intermediate (WTI) crude for delivery in June, lost 77 cents to close at $103.11 a barrel.
Brent North Sea crude for June inched down five cents, settling at $118.71 a barrel in London trade.
GFT Markets strategist Fawad Razaqzada said there was growing uncertainty over the political situation across Europe as French President Nicolas Sarkozy appeared likely to his re-election bid and the Dutch prime minister, Mark Rutte, resigned after his government failed to reach agreement over austerity measures.
“In addition, China’s HSBC Manufacturing PMI contracted for the sixth successive month while manufacturing and services PMIs for Germany, France and the whole eurozone were weak, and suggest that a deeper and more widespread recession across the area is likely,” said Mr Razaqzada.