Europe midday: Stocks slide as China data reignites slowdown fears

European stocks got off to a shaky start in 2016 with heavy losses across the board as a fall in China's stock market led to wider worries about the world’s second-largest economy, outweighing positive data for the eurozone.

The latest Chinese purchasing managers’ index from Caixin showed a drop to 48.2 in December from 48.6 the previous month, missing expectations for a jump to 48.9.

The Caixin PMI is a closely-watched gauge of nationwide manufacturing activity focusing on smaller and medium-sized companies that aren’t covered by the official data.

The figures combined with worries that major shareholders in Chinese companies will cut their positions after the ban of share sales and short selling which came in at the end of trading on Friday, which led to a sharp fall in Chinese markets. The benchmark CSI 300 share index tanked 7%, sparking a trading halt for the rest of the day.

The trading halt marked China’s first ever use of the circuit-breaker mechanism, under which a 5% move in either direction from the CSI 300 index’s previous close sparks a 15-minute trade suspension across China’s stock indexes if it occurs before 1445 local time.

A 5% move after that will prompt a trade suspension until the market closes, while moves of 7% will lead to a halt for the rest of the day.

At midday, the benchmark Stoxx Europe 600 index was down 2.7%, France’s CAC 40 was 2.8% weaker and Germany’s DAX was down 4.2%.

The Stoxx 600 index for basic resources – demand for which is highly dependent on China – slumped 3%.

“Anyone hitting the trading floor expecting a calm and quiet start to 2016 was given a rude surprise as Asian chaos affected European markets,” said Alastair McCaig, market analyst at IG.

“Worries over China’s ability to keep up its pace of economic growth have been hit with an early warning sign as the Caixin PMI data came in weaker than expected, and stretched the contraction in China to ten months.”

Data for the Eurozone was a little more encouraging, however.

Markit’s manufacturing sector purchasing managers’ index came in at 53.2 for December, up from 52.8 the previous month and a preliminary reading of 53.1.

This marked the highest reading since April 2014 and was the first time since then that all the PMIs signalled growth in all of the euro area economies, including Greece.

“Although it remains below the levels reached during the previous recovery cycles in 2011/2012, the survey suggests that the business cycle is building momentum and it is likely to strengthen over the coming months,” said BNP Paribas.

Meanwhile, heightened geopolitical tensions added to the gloomy mood on Monday, as Saudi Arabia severed diplomatic ties with Iran after protestors stormed the Saudi embassy in Tehran following the execution of Shiite cleric Nimr al-Nimr over the weekend. Fellow Gulf producer Bahrain also announced on Monday that it will cut ties with Iran.

The news lifted oil prices, with West Texas Intermediate up 1.5% to $37.60 a barrel and Brent crude up 2.3% to $38.15.

On the corporate front, shares in Fiat Chrysler tumbled after the car maker spun off of its Ferrari division.

In London, pharmaceuticals company Shire was in the red following speculation it is close to completing a takeover of Baxalta Inc.

Bouygues bucked the trend, however, with the French conglomerate on the front foot after a media report Orange was moving closer to buying its telecoms arm.

Still to come on the macroeconomic calendar, US ISM manufacturing data is due at 1500 GMT, along with construction spending figures.