U.S. Stock Futures Lower on Manufacturing Slowdown

By Max Bernhard 

-- European and Asian stocks lower

-- Industrial stocks lead the drop

-- ADP Jobs report warns of slowdown

Global stocks fell Wednesday, led by drops in industrial companies as investors expressed increasing worries about an economic slowdown.

The Stoxx Europe 600 was down 1.5%, with Germany's DAX 1.3% lower and the U.K.'s FTSE 100 down 2.2%.

In the U.S., S&P 500 and Dow Jones Industrial Average futures were both down 0.4%.

The nonfarm private sector in the U.S. added more jobs than expected in September, according to the ADP National Employment Report on Wednesday, but the report warned that the job market was showing signs of a slowdown as businesses are turning more cautious.

Markets overseas continued to react to disappointing economic data. Germany's leading economics research institutes jointly lowered their growth forecasts Wednesday for Europe's largest economy. They cited slowing global demand for capital goods, structural changes in the auto sector -- one of Germany's most important industries -- and political uncertainty. That followed Tuesday's figures showing manufacturing activity in the U.S. was at its lowest point in a decade in the U.S.

Steel giant ArcelorMittal and Finnish construction machinery maker Konecranes were both among the biggest losers in Europe, falling 3.8% and 4% respectively.

"There hasn't been a single month this year where Germany has seen expansion in its manufacturing sector," said Michael Hewson, chief market analyst at CMC Markets, who expects the weakness in manufacturing to spill over into the services sector.

If the manufacturing slowdown spreads to the still robust service sector, this would increase pressure on the Federal Reserve to cut rates again in October, said Stefan Schilbe, HSBC Germany's chief economist.

Among individual stocks, U.K. bookmaking business Flutter Entertainment was the only gainer on the FTSE 100, up 12% after it agreed to merge with Stars Group, creating an online betting giant worth more than $11 billion.

U.K. stocks overall were among the hardest hit in Europe. That was despite a weaker pound, which usually benefits FTSE 100 listed companies, many of which derive a majority of their earnings abroad. The pound fell 0.2% to $1.228.

Prime Minister Boris Johnson presented his latest Brexit proposal and warned he is still prepared to take the U.K. out of the EU at the end of October without a deal.

The FTSE 100's decline was driven by mining and oil companies as well as the construction sector, said Chris Beauchamp, chief market analyst at IG. U.K. construction activity data dropped in September, a slowdown which survey respondents attributed to uncertainty over Brexit. Miners Antafogasta PLC and Rio Tinto traded down 4.1% and 3.5%, respectively.

European luxury-goods stocks traded lower ahead of an expected World Trade Organization ruling on the extent of tariffs the U.S. would be allowed to impose on some European goods, including luxury items and airplanes. LVMH traded 2.2% lower, Burberry was down 3.7% and Kering traded 3% lower.

Bank stocks in Europe fell, with the Stoxx Europe 600 Banks index down 1.4%, reflecting unease about falling bond yields, which crimp lender profits. Banks' performance is also seen as highly correlated with economic growth. Swiss bank UBS Group was down 2.3%.

In Asia, Korea's Kospi was down nearly 2% following news that North Korea fired at least one missile off its east coast. The move, seen as a show of strength, came after Pyongyang said it would resume official nuclear talks with the U.S. In Japan, the Nikkei fell 0.5% and Hong Kong's Hang Seng was down 0.2%. Mainland Chinese stock markets were closed for a holiday.

In commodities, Brent crude rose 0.4% to $59.11 a barrel.

The yield on U.S. 10-year Treasurys was slightly lower at 1.625%, from 1.638% Tuesday. Bond yields and prices move in opposite directions.

Looking ahead, investors will eye the ADP National Employment Report for signs of any cracks in the U.S. job market. Plus, Ford Motor Co. will report third-quarter sales.

Write to Max Bernhard at [e-mail]

(END) Dow Jones Newswires

October 02, 2019 09:09 ET (13:09 GMT)

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