Europe close: Stocks plunge as worries over China intensify

European markets fell into correction territory on Friday, as weak Chinese manufacturing data compounded fears of a slowdown while news of snap elections in Greece also undermined sentiment.

The benchmark Stoxx Europe 600 closed down 3.07%, while Germany’s DAX and France’s CAC 40 were 2.70% and 2.94% lower respectively.

Elsewhere, the euro was broadly flat against the yen, but surged 0.91% and 1.01% against the pound and the dollar respectively, while Brent crude plunged 2.73% to $45.38 a barrel.

Chinese stocks fell again after a key manufacturing index deepened concerns over China’s growth, with the Shanghai Composite falling 4.27%, just a touch above its 8 July low, while the smaller Shenzhen index fell by 5.39% and the start-up focused ChiNext index was lowered by 6.65%.

"There is a growing feeling that China is fast running out of ideas to fix this crisis and the implications for global business have been exhibited perfectly on the stock markets, with the Dow Jones Industrial Average on course to suffer its biggest monthly loss since 2009," said IG analyst Joshua Mahony.

Meanwhile, Greece was in focus again after Prime Minister Alexis Tsipras resigned late on Thursday and called an early election.

Tsipas said it was his moral duty to head to the polls now that Greece’s third bailout has been secured.

Although the election date is yet to be set, media reports suggest it could be on the 20 September. According to Greek media reports, as many as 25 rebel MPs from the main party Syriza are now planning to break away and form a new party.

Friday data

Consumer confidence in the Eurozone rose slightly in August, as the index climbed 0.3 points in August from July to -6.8 in its flash estimate.

Markit’s flash Eurozone Purchasing Managers’ Index (PMI) rose 0.2 points to 54.1 in August, marking the 26th consecutive month of expansion and beating estimates of a 53.7 reading. The manufacturing PMI was unchanged at 52.4, but above expectations for a decline to 52.2, while the services PMI rose from 54 to 54.3, ahead of consensus for an unchanged reading.

Markit’s flash composite Purchasing Managers’ Index (PMI) edged 0.3 points higher to 54.0 in August, marking the 28th consecutive month of expansion in the Eurozone’s largest economy and comfortably above the 50 threshold that indicates expansion.

"The August PMIs for the eurozone suggest the recovery remains broadly on track and third quarter growth looks likely to be around 0.5% quarter-on-quarter," analysts at BNP Paribas said in a note.

"However, risks to subsequent quarters are building given the seemingly sharp slowdown in China, falling equity markets globally and a rising euro."

Meanwhile closely-watched GfK consumer confidence index for September slid 0.2 points to 9.9, against expectations for an unchanged reading, as the optimism among consumers was hit by a minor set-back in August.

Across the Atlantic, the Markit flash Purchasing Managers’ Index declined from 53.8 in July to 52.9 in August, compared with expectations for an unchanged reading, hitting its lowest level since October 2013.

In company news, Dutch oil and chemicals storage company Vopak tumbled 15.4% said its core earnings were likely to drop in the second half of the year.

In terms of sectors, the Stoxx 600 index for autos and parts was sharply lower, weighed by concerns over China. On the upside, though, defensive sectors such as utilities, food and beverages and telecoms, whose performance is not highly-correlated with the economic cycle, fared the best.