Europe chems stocks fall amid global stock market rout

11 October 2018 10:56 Source:ICIS News

LONDON (ICIS)--European chemicals and petrochemicals shares fell on Thursday amid a market sell-off in indices across the globe, as investors worry about the health of the global economy amid the US-China trade war.

Markets in North America, Europe and Asia slumped on the back of surging bond yields and jitters around the US-China trade war and its impact on global demand.

The sell-off follows a warning from the International Monetary Fund (IMF) on this week that risks for global market stability have risen sharply.

The IMF downgrade of 2018-2019 global growth prospects rattled markets on Wednesday, and sent crude prices slumping in the run-up to the sell-off, which began in the US before spreading to Asia and Europe as markets opened.

The Dow Jones Industrial Average index fell over 800 points or more than 3% in Wednesday trading, while the Japan’s Nikkei 225 index closed down nearly 4% on Thursday.

The Shanghai Composite index fell over 5%. Germany’s DAX, the UK’s FTSE 100 and France’s CAC 40 were all trading down around 1.5%-1.75% as of 10:25 London time.

Several factors are thought to have informed the rout, with IMF chief Christine Lagarde reportedly noting at a summit in Bali that global markets, particularly US indices, have been extremely high in recent months, hinting that a correction may have been due.

The extent of the falls at global bourses is the most severe since February, when fears that the resilient economic recovery in most regions would trigger a winding up of quantitative easing and sharp hikes to interest rates by central banks.

US President Donald Trump has criticised moves by the US Federal Reserve (Fed) to hike interest rates, saying on Wednesday that the central bank has “gone crazy” in continuing to tighten US monetary policy.

“Days like yesterday, although brutal, restore one’s belief that at this stage of the rate cycle things should start to get more difficult and more volatile even if the centre – the US economy – is still likely to hold for now,” said Deutsche Bank head of global fundamental credit strategy, Jim Reid.

“In fact, it has been our thesis that the US economy at risk of overheating is partly what’s going to drive volatility up."

While US-China trade war jitters continue to intensify among investors, European players have also watched with concern the increasingly aggressive tone taken by Italian policymakers toward the European Commission – the EU's executive body – as the deadline for eurozone economies to submit their 2019 spending plans to Brussels approaches.

The bipartisan populist coalition of Five Star Movement and League are expected to submit a budget honouring election promises to fight back against Commission austerity diktats and increase spending.

The move is expected to place the country more directly in conflict with the EU government, increasing concerns over the stability of the bloc.

Fertilizer producers Yara and OCI were the biggest losers among European chemicals as of 10:25 London time, shedding more than 4% of their share value since Wednesday’s close, while Victrex, K+S and Umicore all saw drops of over 2%.

Germany-headquartered pharma and agrochemicals major Bayer bucked the overall bearishness, after a US judge looked set to slash the penalty levied against the company over a man claiming to have been diagnosed with cancer as a result of exposure to weed killer RoundUp, produced by Monsanto, Bayer's recent acquisition in the US.

Motions submitted by Bayer for a new trial have been granted, meaning that the original verdict of $250m in damages may be thrown out and the case to be heard again.

Pictured: A Chinese investor on Thursday watches an electronic board showing the stock index and prices falling sharply
Source: Roman Pilipey/EPA-EFE/REX/Shutterstock

By Tom Brown