By Josie Cox
European shares snapped a two-session climb on Tuesday, burdened
by lackluster German industrial production data dealing yet another
blow to the continent's largest economy and amplifying concerns
surrounding the growth outlook for the whole eurozone.
Factory output in Germany slumped 4% on the month in August,
well below expectations for a 1.5% decline in a survey conducted by
Dow Jones Newswires, while July's figure was downwardly revised to
growth of just 1.6% from the 1.9% gain originally reported.
That sent Frankfurt's DAX 30 down almost 0.9%, after gains in
the previous session had already been capped by figures showing a
surprising decline of 5.7% in manufacturing orders for August.
"We expected industrial production to be weak in the third and
fourth quarter but the decline now looks a little more severe,"
said Evelyn Herrmann, an economist at BNP Paribas.
Ms. Herrmann said the data imply "clear downside risks" to the
bank's third-quarter gross domestic product growth forecast for
Germany, which currently stands at a quarter-on-quarter rise of
0.2%.
"There are fears, particularly in some of the industrial and
engineering sectors, that these German figures are starting to
demonstrate more of a trend rather than just a blip," said Colin
McLean, managing director at investor SVM Asset Management in
Edinburgh.
Elsewhere in Europe, the Stoxx Europe 600 lost 0.9%, France's
CAC 40 1.1% and the U.K.'s FTSE 100 0.6% after figures showed that
industrial production there was unchanged in August. In the U.S.,
the S&P 500 was indicated falling 0.4% at the open. Futures,
however, don't necessarily reflect moves after the market open.
One name notably bucking the weakening trend in London, was Rio
Tinto PLC, after it announced that it had received an approach from
Glencore PLC in July about a takeover, although that proposal was
rejected.
The mining giant's shares opened almost 6% higher before easing
slightly, even though it said there had been no contact with
Glencore since early August.
In currency markets Tuesday, the U.S. dollar retreated around
0.3% against the yen, to trade at Yen108.46 after comments by
Japanese Prime Minister Shinzo Abe warning of the debilitating
effects of a weak yen on households and small and midsize
companies.
The dollar also lost a little ground against the euro overnight,
with some warning that the buck's recent rally, especially spurred
by Friday's strong jobs report, may have been overdone.
"Yield spreads between the U.S. and other major economies have
so far failed to widen further in favor of a stronger U.S. dollar
since mid-September potentially also signaling that U.S. dollar
strength maybe overshooting somewhat in the near term," said Lee
Hardman, a currency strategist at Bank of Tokyo Mitsubishi UFJ.
Others, however, argue that the rise is likely to resume.
"We expect the dollar to continue outperforming within G-10
heading into year-end," Geoffrey Yu, a currency strategist at UBS
wrote in a note on Tuesday. "Policy differentials will consolidate
in the dollar's favor and the latest round of data suggest that the
balance of risks has shifted toward the Fed becoming more
assertive," he added.
In commodity markets, Brent crude lost 0.6% to $92.25 per barrel
while gold advanced by 0.1% to $1,208.70 a troy ounce.
Write to Josie Cox at josie.cox@wsj.com