World stocks turn lower as US data sparks worry, yields rise

Global equities turned lower on Thursday as U.S. manufacturing data dragged and financial stocks in Europe saw their biggest one-day rout since March 2023.

Treasury yields also fell on the soft economic data, as well as a rate cut in the UK and the prospect of policy easing in the United States.

MSCI's gauge of stocks across the globe fell 11.15 points, or 1.37%, to 803.01 by 1:13 p.m. ET (1713 GMT)

Oil futures gave back earlier gains, as global supply seemed largely unaffected by worries of a broadening Middle East crisis.

The Federal Reserve held interest rates steady on Wednesday but opened the door to a cut in September. The Bank of England stole a march on the U.S. central bank on Thursday by lowering borrowing costs by a quarter-point in a narrow 5-4 vote.

The U.S. Institute for Supply Management's (ISM) manufacturing PMI dropped to its lowest since November, below a key level that indicates contraction in a sector that accounts for more than 10% of the economy.

The data suggests the economy might be in worse shape than expected, said Robert Pavlik, senior portfolio manager at Dakota Wealth.

"And (Federal Reserve Chair) Powell's still on hold with rate cuts, so that's gotten them concerned."

On Wall Street, the Dow Jones Industrial Average fell 553.80 points, or 1.36%, to 40,288.99, the S&P 500 lost 76.79 points, or 1.39%, to 5,445.51 and the Nasdaq Composite lost 388.86 points, or 2.21%, to 17,210.54.

Tech giants Apple and Amazon.com will report earnings later on Thursday.

Europe's STOXX 600 index closed more than 1% lower with the banking sector seeing its largest one-day decline since March 2023.

"The fact that some heavyweights are cutting guidance does not bode well going forward and might well explain why European markets are underperforming," said Stephane Ekolo, equity strategist at TFS Derivatives.

"Disappointing set of results, slowing growth for industrials, Chinese consumers no longer there to rescue demand and a possible resurgence of inflation. You have a not so pleasant cocktail."

Britain's FTSE 100 bucked the trend.

"If you look at the headlines that (BoE Governor Andrew) Bailey produced: caution on cutting too quickly or by too much, it implies to me that they're looking at a steady quarterly pace of reductions," said Colin Asher, economist at Mizuho.

"I would say that makes a cut in the next meeting in September unlikely. The start of lower interest rates is underway, but reasonably gradually."

Emerging market stocks held onto gains, up 0.16% at 1,086.51. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.54% higher at 568.59.

Japan's Nikkei, however, tumbled 2.5% as a sharp jump in the yen clouded the outlook for exporters.

(Reporting by Chris Prentice, Samuel Indyk, Stella Qiu and Ankur Banerjee; Additional reporting by Ankika Biswas Editing by Chizu Nomiyama and Bernadette Baum, Kirsten Donovan)

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