Weak PMIs, Spain election uncertainty dent sentiment

LONDON, July 24 (Reuters) – Global stocks fell on Monday, with weak business activity data and an inconclusive election result in Spain weighing on sentiment in Europe ahead of a busy central bank week for markets.

German business activity contracted in July, increasing the likelihood of a recession in the second half of the year, the German Flash Composite Purchasing Managers’ Index (PMI) showed.

HCOB’s flash Composite Purchasing Managers’ Index (PMI) for the euro zone, seen as a good measure of overall economic health, fell to an eight-month low of 48.9 in July from 49.9 in June.

This along with news that no clear winner emerged from Spain’s snap election on Sunday added to a gloomy mood at the opening of European markets.

The euro fell 0.4% against the dollar, government bond yields across the bloc fell as European stock markets fell, with Spain’s benchmark index down 1% in a clear underperformance.

With the Federal Reserve, European Central Bank and Bank of Japan meeting this week, the general situation in the global markets has changed somewhat to caution.

“The upcoming meetings of the FOMC (fed) and the ECB are expected to result in a 25 basis point increase in rates from both institutions, combined with hawkish forward guidance,” said Bruno Schneller, a managing director at INVICO Asset Management.

“The decision for the next increase in September depends on the direction of growth and future inflation data,” said adding that a significant deceleration in the US economic GDP growth is likely and points to a stop in the rate increase.

The odd man out is the Bank of Japan which meets on Friday and is thought to be likely to continue its super-loose policy, but some Western banks are predicting a tweak in its yield curve control stance.

Reuters reported last week that BOJ policymakers want to examine more data to make sure wages and the inflation rate continue to rise before changing policy, though the decision could still be a close call.

Japan’s Nikkei (.N225) edged up with a 1.2% gain, while MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) slipped 0.5%.

China’s Politburo meeting this week could see more stimulus announced, although investors have so far been surprised by Beijing’s actions to maintain a sputtering post-pandemic recovery.

Chinese blue chips (.CSI300) fell 0.4%, while property developer Country Garden (2007.HK) eased on debt concerns.

SPAIN UNDERPERFORMS

Spain faced political gridlock on Monday after far-right parties failed to claim a decisive victory and no clear winner emerged in Sunday’s national election, leaving the Basque and Catalan smaller regional parties as potential kings.

Investors reacted by pushing Spain’s benchmark IBEX index (.IBEX) down 1%.

Shares of major lenders Santander ( SAN.MC ), BBVA ( BBVA.MC ), Sabadell ( SABE.MC ) and Caixabank ( CABK.MC ) fell between 1.5% and 3.3%, ranking them among the biggest decliners across the European stock market.

“I don’t think it (the election) is necessarily part of a darker outlook for Spain in the longer term, but just think at the moment, we see uncertainty and the markets hate uncertainty,” said City Index strategist Fiona Cincotta.

INCOME HOST

In addition to central bank meetings and economic data, investors are also preparing for more earnings from both sides of the Atlantic.

US stock futures, however, were slightly lower, pointing to a positive open for Wall Street.

A who’s who of major companies reported this week including Alphabet, Meta, Intel, Microsoft, GE, AT&T, Boeing, Exxon Mobil, McDonald’s, Coca Cola, Ford and GM.

The results should be good enough to justify the S&P 500’s gains of more than 20 and its gains of 19% year to date.

“Today’s market performance can be attributed to the narrowest lead seen in three decades,” said INVICO Asset Management’s Schneller. “The S&P 500’s full-year return of approximately 16.5% can be accounted for by 31 stocks.”

Yields on 10-year Treasuries were steady at around 3.82%, still below a recent spike of 4.094%.

The US dollar fell 0.25% to 141.48 yen, having jumped 1.3% on Friday after the BOJ report.

The euro fell around 0.4% to $1.1082 as government bond yields across the euro area fell after weak PMI data.

Oil prices eased earlier in the fall with Brent trading almost flat on the day at $81 and US crude also little changed around $77.

Reporting by Nell Mackenzie and Dhara Ranasinghe in London; Additional reporting by Wayne Cole in SYDNEY and Amanda Cooper in London.

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