StockBeat: Markets Brace for Triple-Whammy as China Piles on the Pain

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By Geoffrey Smith — Europe’s stock markets are reeling from a double-whammy after early trading, hoping it doesn’t become a triple-whammy later in the day when the monthly U.S. is published.

A shocking 20% year-on-year decline in in January, announced during the Asian session, has accentuated fears for the global economy, only hours after the European Central Bank revealed the limitations of its ability to support growth when forces such as populism and protectionism are holding it back.

At 04:14 AM ET (0914 GMT), the benchmark was down 13.7 points, or 0.4%, at 3295.15, but the standout sectors tell you everything you need to know about what’s wrong: the trade-sensitive Autos and Parts Index and Basic Resources index are the worst affected, down 1.7% and 1.1% respectively, while the Banks Index is also down 1.1%.

Germany’s is down 0.7% after another disappointing set of manufacturing orders data. But the French and Italian haven’t benefited from industrial production data that were better than expected.

Among the carmakers, Volkswagen (DE:) is down 1.9%, thanks to a report in the German daily Handelsblatt chronicling its internal fighting over how to move away from diesel to electric power. The paper said the VW is considering up to 7,000 more job cuts.

Unpicking the bank story isn’t as simple. The overriding concern, says Nordea Markets’ Jan van Gerich, is that the new loans that the ECB plans to offer from September won’t do much to increase bank lending or their profit margins.

“The terms are not particularly attractive and appear mainly aimed at preventing an abrupt tightening of liquidity conditions rather than provide new easing,” van Gerich said in a blog post.

As such, the measure looks like yet another band aid to a sector that still hasn’t cleared up its bad loan problem. That band aid has most value to Italian banks, which have performed better than their regional rivals. But it has done nothing for domestic-focused Spanish banks like Sabadell (MC:) and Bankia (MC:). More internationally-oriented Santander (MC:) and BBVA (MC:) have fared slightly better.

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