Europe open: Stocks kick off 2016 with heavy losses on weak China data

European stocks kicked off the first session of 2016 with heavy losses, taking their cue from a dismal session in Asia after disappointing Chinese manufacturing data.

The latest 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 and adding weight to concerns about a slowdown in the world’s second-largest economy.

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 led to a sharp fall in Chinese markets, with the benchmark CSI300 share index tanking 7%, sparking a trading halt for the rest of the day.

At 0845 GMT, the benchmark Stoxx Europe 600 index was down 2.7%, France’s CAC 40 was 2.8% weaker and Germany’s DAX was down 3.7%.

“China’s latest PMI data implies more stimulus may be required in 2016, “said Jasper Lawler, market analyst at CMC Markets.

“The surprise monthly drop in the Caixin report comes off the back of the official manufacturing PMI that saw factory activity shrink for the fifth month in December with a reading of 49.7, up slightly from November. A big swing factor for this coming year will be whether Beijing makes better use of its ability to stabilise the Chinese economy. The government has been walking a tightrope of growth stabilisation and economic reform. The way Chinese authorities lean in 2016 could determine whether market’s have a good year or not.”

Meanwhile, heightened geopolitical tensions added to the gloomy mood on Monday, as Saudi Arabia severed diplomatic ties with Iran after protesters stormed the Saudi embassy in Tehran following the execution of Shiite cleric Nimr al-Nimr over the weekend.

Oil prices initially surged on the news but later pared gains, with West Texas Intermediate up 0.6% to $37.27 a barrel and Brent crude up 0.5% at $37.46.

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.