European Stocks Tumble Amid Fears of U.S. Economic Slowdown

European shares dropped to a six-month low amid global equity selloff due to fears of a U.S. economic slowdown. The STOXX 600 index fell 2.2%, and volatility surged, with energy and financial sectors hit hardest. Investors are keenly awaiting a U.S. employment report for further guidance.

European shares fell to near six-month lows amid a global selloff in equities, triggered by fears of a slowdown in U.S. economic growth, with only a handful of stocks trading in the green.

The pan-European STOXX 600 index dropped 2.2% to 487.15 points, its lowest since February 14, by 0827 GMT. The Euro STOXX volatility index spiked 5.7 points to 30.26, marking its highest since March 2023.

Fears of a potential U.S. recession have driven investors away from risk assets, causing Japan's Nikkei to close 13% lower. Major European indices, including Germany's DAX, France's CAC 40, Britain's FTSE, and Spain's IBEX 35, all saw declines of more than 2%.

Chris Beauchamp, chief market analyst at IG Group, noted, "You don't get the Nikkei falling by its largest amount in nearly 40 years without some kind of repercussions across European markets. These things don't usually stop on a dime; it takes a few days to sort out... but the initial panic appears to be over."

Energy stocks were the hardest hit, falling 3.4% after oil prices dropped 1%. Financial shares also suffered, with banks losing 3%, financial services shedding 2.8%, and the tech sector slipping 2.1%.

Later in the day, investors will look to the ISM non-manufacturing survey for insights into U.S. employment in the service sector. Last week's weak July payrolls report has already heightened concerns about the health of the U.S. economy, inciting a global risk-off sentiment.

The STOXX 600 experienced its worst week in almost 10 months on Friday, falling below the 500-mark for the first time since April 15. Markets currently see a 78% probability of a 50-basis-point cut by the Federal Reserve on September 18, with traders also anticipating a rate cut by the European Central Bank on September 12.

On the data front, euro zone business activity growth stalled last month, with the Purchasing Managers' Index for the currency union declining to 50.2 in July from 50.9 in June. Growth in Germany's services sector also slowed for the second consecutive month in July.

Among individual stocks, Galderma saw a gain of 6.7% after L'Oreal announced it would acquire a 10% stake in the Swiss skincare firm from major shareholders. OCI Global surged 10.3% after Woodside Energy disclosed plans to acquire the Dutch chemical maker's clean ammonia project in Texas for $2.35 billion.