Risk off as global manufacturing data and retail sales disappoint

Investors averted risky asset classes today and sold out of heavyweight resource and financial stocks after manufacturing data out of China, Germany and the eurozone emphasised the slowdown of global growth.

UK retail sales also disappointed, with sales falling quicker than forecast whilst the previous month saw a sharp downward revise, keeping the pressure on the UK’s high streets and maintaining the risk off mode from investors today.

By late morning trade, the FTSE 100 had lost 1% to trade below support at 5840, whilst the German DAX index fell the heaviest in European trading, losing 1.5%.

The manufacturing data out of China, Germany and the broader eurozone has been really disappointing and triggered investors into shying away from risk.

The HSBC flash PMI fell to 48.1 from 49.6, weighed down significantly from a slump in new orders, which fell to 46.2 whilst new export orders continued to slide. We always see a knee jerk reaction from investors in mining stocks each time there is further evidence of a potential hard landing in Chinese growth and unfortunately the HSBC flash PMI data alludes to such a scenario.

As a result, we have seen investors sell out of heavyweight mining stocks, forcing the FTSE 350 mining sector lower by over 3% to reach its lowest levels since 3 January 2012.

Indeed, weakness in the mining sector over the past six weeks has been a crucial factor in the inability of the FTSE 100 to breach the 6000 level, with the sector now down 15% since early February.

Much of the ability for miners to bounce back will likely be weighted in Chinese monetary policy expectations and whether the country starts to increase the speed at which monetary policy swicthes to stimulate the slowdown in the Chinese economy, and subsequently, falling resource demand.

Equally alarming on the data front today was the fact that we have also seen German flash PMI data surprisingly re-enter contraction territory at 48.1, when a measurement of 51 had been expected, whilst eurozone manufacturing measures remain in contraction zone, slipping further to 47.7 from 49 when a small improvement to 49.5 had been expected.

UK retail sales slump 
UK retail sales also told a concerning story, with UK sales falling quicker than expected last month by 0.8% against expectations of a fall of 0.4%, whilst the previous month’s growth of 0.9% was sharply revised down to 0.3%.

The really disappointing element for me is the downward revise to the previous month’s growth. It tells a tale that the stronger start to the year on the high street was perhaps not as strong as suggested and re-affirms the cautious stance on retail outlook. A continuation of weak retail sales data poses a significant threat to the FTSE 350 retail sector which has rallied 18% already this year.

Randgold shares slump 15% on Mali coup rumours
Shares in gold miner Randgold Resources slumped 15% as shareholders grew increasingly concerned regarding the miner’s production at its Mali operations amidst political instability in the region, with speculation that a coup may be taking place amidst gunfire in the capital overnight.

Investors hate uncertainty and with the country in a state of emergency we have seen significant reductions in investor’s positions in Randgold Resources, and this theme could continue until there is a sense of clarity surrounding the situation within the country and any effect on the miners’ operations and production.