Europe’s investors nervous – US debt and China in view

Frankfurt (Reuters) – The upcoming vote on the compromise in the US debt dispute and weak economic data from China are making investors nervous.

The leading German index, the Dax, fell 0.2 percent to 15,870 points on Wednesday. Its European counterpart, the EuroStoxx50, lost 0.4 percent to 4276 points.

“For investors, it’s time to hold your breath, because towards evening it will become clear whether the USA will raise its debt ceiling or whether there will be a temporary default,” said Jürgen Molnar, strategist at broker RoboMarkets. The Republican-led Rules Committee of the House of Representatives cleared the way for a full Chamber of Congress vote on the bill.

Weak economic figures from China also contributed to the gloomy mood. Chinese industry contracted faster than expected due to weak demand in May. The official manufacturing purchasing managers’ index (PMI) fell to 48.8 in May from 49.2 in April, remaining below the 50-point mark separating expansion from contraction. The result also fell short of analysts’ forecast for a rise to 49.4.

STUTTING RECOVERY IN CHINA PUTS COPPER PRICE DOWN

Concerns about China put pressure on the copper price. The base metal fell half a percent to $8,085 a ton, heading for its second monthly loss. Big consumer China has been a major contributor to the price drop as domestic demand for the metal has been disappointing, said Konstantin Oldenburger, an analyst at broker CMC Markets. “Without significant infrastructure stimulus from China, there is limited hope for copper prices in the near term.”

In contrast, “safe havens” such as government bonds were in demand. The yield on 10-year Bunds fell to 2.256 percent from 2.340 percent on Tuesday as the price rose. The dollar index, which measures the value of the greenback against other major currencies, also gained half a percent to 104.59 points. In return, the euro lost 0.7 percent to $1.0661.

COMPANIES WITH STRONG CHINA BUSINESS UNDER PRESSURE

Economic weakness in China weighed on the shares of companies with strong operations in the People’s Republic. The European indices for the automotive sector and industry lost just under one and more than half a percent respectively. German corporations such as Continental, Mercedes Benz, Rational and Knorr Bremse lost between 0.9 and 2.8 percent. China is Germany’s most important trading partner.

Uniper was once again in the spotlight. The stocks of the largely nationalized gas importer were up more than 13 percent. Analysts and traders referred, among other things, to the increased volatility of the share due to the low free float and the falling gas prices, which allowed Uniper to benefit from its futures transactions.

(Report by Zuzanna Szymanska. If you have any questions, please contact our editorial team at [email protected] (for politics and economics) or [email protected] (for companies and markets).)

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