Shares are dropping after Germany confirms its economy shrunk last quarter, fanning recession fears

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Brendan McDermid/Reuters

  • European equities and US futures slid on Tuesday after Germany confirmed its economy shrunk 0.1% last quarter.
  • German business confidence has slumped to its lowest level in more than six years, a recent survey found.
  • Recent escalation in the US-China trade war has also knocked market sentiment.
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European equities and US futures dropped on Tuesday after Germany confirmed its economy shrunk 0.1% last quarter, fanning fears of an impending recession.

“European markets are trading modestly lower as investors feel anxious about the GDP contraction of the biggest economy of the eurozone, Germany,” Naeem Aslam, chief market analyst at TF Global Markets UK, said in a morning note.

Germany’s overseas shipments dropped 1.3% in the second quarter – the biggest slump in more than six years, according to Bloomberg. Capital investment also dipped, offsetting a marginal rise in private consumption. The upshot was a decline in total economic output for the second time in the past year.

The bad news comes after an Ifo survey of German businesses found confidence has slumped to its lowest level in more than six years. “Worry lines among German business leaders are getting deeper and deeper,” the Munich-based research firm said on Monday.

Recent escalation in the US-China trade war is also weighing on market sentiment. The US has threatened to hike tariffs on Chinese products by about 5%, after China retaliated against upcoming US tariffs on virtually all Chinese goods with duties on $75 billion worth of US products.

“It’s the way I negotiate,” President Donald Trump told reporters on Monday, dashing hopes of reconciliation between the world’s two biggest economies.

Here’s the market roundup as of 9:40 a.m. (4:40 a.m. EST):

  • European equities have slid with Germany’s Dax down 0.2%, the Euro Stoxx 50 down 0.3%, and Britain’s FTSE 100 down 0.5%.
  • US stocks are set to open lower. Futures underlying the Dow Jones Industrial Average, S&P 500, and Nasdaq were down 0.4%.
  • Asian indexes were mixed with China’s Shanghai Composite up 1.4%, Japan’s Nikkei up 1%, and Hong Kong’s Hang Seng down 0.2%.
  • Oil prices have risen with West Texas Intermediate crude up 0.7% at about $54 a barrel, and Brent crude up 0.6% at $58.50.
  • Gold has rallied 0.3% to $1,541.