Stocks slide as China recovery weakens

LONDON — Stock markets retreated on Monday as weak Chinese economic data, fears of a resurgent coronavirus and the Taliban's victory in Afghanistan gnawed at investor sentiment.

The main equity indices in the US and Europe were lower after widespread falls across Asia.

"Weaker economic data emanating from China has spoiled the mood, with lower readings on retail sales and industrial production raising questions on whether the recovery momentum can be maintained," said Richard Hunter, head of markets at Interactive Investor.

"In addition, there remain some health issues in Asia generally, while geopolitical concerns have also surfaced following the developments in Afghanistan and the implications for the future of the region."

Growth in China's retail sales and industrial production slowed in July, official data showed on Monday, with a rebound of COVID-19 dragging on demand in the world's second-biggest economy.

Market watchers were also closely following developments in Afghanistan.

US troops fired shots into the air and all commercial flights were cancelled at Kabul airport on Monday as thousands of Afghans crowded onto the tarmac in the hope of catching any plane out after the weekend Taliban takeover.

On the economic front, retail sales in China expanded 8.5 per cent in July year-on-year and industrial output was up 6.4 per cent, according to figures released by the government's statistics bureau, with both figures below analyst estimates.

Lockdowns and other movement restrictions brought in to combat the country's recent coronavirus outbreaks have been blamed for hampering economic performance along with a series of deadly floods.

Raymond Yeung, chief economist for Greater China at ANZ Banking Group, said the figures "suggest the economy is losing steam very fast".

Surging infections linked to the Delta variant of the coronavirus "also adds extra risk to August's activities", he added.

The resurgence of the virus in China was "weighing on investors' nerves now, especially when one looks at the evolution of outbreaks in the region from Australia to Singapore to Japan and everywhere in between", said Jeffrey Halley, senior Asia-Pacific market analyst at OANDA.

"If anyone can break the trend, it is China," he added. 

"But widespread outbreaks and restrictions would be a game-changer for the Asia recovery, and one could argue, the global one as well when one considers the implications to supply chains."

Investors are meanwhile also preparing for the US Federal Reserve (Fed) to begin reducing the pace of its asset purchases that have supported the economy — and equity markets. 

"Fed Chair Jay Powell is expected to announce tapering plans either at the Jackson Hole symposium in late August or at the next" meeting of the central bank's monetary policy body in September, ThinkMarkets analyst Fawad Razaqzada said.

Oil prices were down around 1.5 per cent on the weak Chinese economic data.

"Expectations were already low leading into the numbers, and combined with the warning from the [International Energy Agency] that demand for crude oil was slowing, prices have slipped sharply," said market analyst Michael Hewson at CMC 

Markets UK.