European stock markets took a dive on Tuesday with car manufacturers and miners in free-fall resulting from the worsening Volkswagen scandal and a bleak outlook for the Chinese economy, according to dealers.

Volkswagen recently revealed that as many as 11 million diesel cars were equipped with devices that could skew emissions data. This resulted in the plummet of Frankfurt’s benchmark DAX 30, which sank 3.8% to 9570.66 points, with the guilty “The People’s Car ” company dropping by nearly 20%.

The rest of Europe followed similar patterns. The Paris CAC 40 lost 3.42% to 4428.51, points and London’s FTSE 100 dropped by 2.83% to 5935.84 points.

Another factor contributing to the decline in the global markets is the recent slashing by the Asian Development Bank (ADB) of growth forecasts for China. This directly led to miners suffering sharply, which was also shown in the fall of the European markets.

“If a growth downgrade from the Asia Development Bank wasn’t bad enough for global stock markets, knocking the mining sector sharply lower on prolonged global growth fears in Asia, the auto sector has skidded into full reverse as Volkswagen’s woes continue,” said Michael Hewson, analyst at traders CMC Markets analyst.


Volkswagen Scandal Spreads Throughout Europe

It seems as if there were more to the woes surrounding the VW scandal. According to Hewson, VW has issued a profits warning as concerns mounted “that the probe into VW’s emissions deception might uncover much wider malpractice in the sector.”

VW is looking to take action themselves to deal with negative publicity better.  There are reports saying that the VW chief executive Martin Winterkorn could be forced out later this week by the company’s supervisory board. The United States has also opened up a criminal probe.

VW stock plunged by 19.82% to €106 per share as the group also set aside €6.5 billion in provisions in the third quarter to cover potential costs arising from the scandal.

The effect the scandal had on the share price has been disastrous. With its stock plunging 35% in just two days, VW lost €25 billion in market capitalization and now has issued a warning that it will have to adjust its annual profit targets accordingly.

The enormity of Volkswagen’s problems became more clear as it acknowledged 11 million diesel vehicles may have the pollution cheating device, much more than the half million for which US authorities could fine the carmaker up to US$18 billion.

The fast-moving VW scandal sent rival European carmakers plunging on growing worries over the sector. German carmakers BMW and Daimler sank by 6.02% and 7.02% to stand at €79.32 and €66.25 respectively.

In Paris, French peers Peugeot shed 8.76% to €13.86 and Renault 7.12% to €66.55. Shares in Fiat Chrysler fell 6.21% to €11.93 on the Milan exchange, which fell 3.33% overall.

“It’s an auto sector shaking incident that is the main contributor to Tuesday’s bearish trading – and something that looks like it could rumble on for some time,” said Connor Campbell, analyst at dealer Spreadex.


China’s Economy and Mining Sector Woes

Mining companies were also among the worst performers after the ADB forecast Asian growth would hit 5.8% this year and 6.0% in 2016. March’s forecast was for 6.3% for both years.

It tipped China – the main driver of global economic growth – to expand by 6.8% this year. That was downgraded from 7.2% after a stream of weak indicators including on trade, inflation, investment and consumer spending.

The news weighed heavily on mining and metal groups around Europe because China is a major consumer of commodities such as copper and gold.

In London, mining giant Glencore saw its share price nosedive 10.63% to 106.35 pence, topping the FTSE 100 fallers’ board. Anglo American dropped 6.73% to 648.10 pence and Antofagasta shed 7.25% to 524.50 pence.

In Amsterdam, shares in ArcelorMittal – the world’s biggest steelmaker – lost a hefty 5.92%, declining to €5.46 a share. Steel group Thyssenkrupp shed 4.8% to €16.26 in Frankfurt.

In foreign exchange activity on Tuesday, the European single currency slid to US$1.135 from US$1.1195 late in New York on Monday, as the dollar received support by US officials talking up chances of an interest rate hike later this year.

That talk hit emerging market currencies in Asia, but the region’s stocks fared better. Sydney ended 0.74% higher and Seoul closed up 0.88%. Hong Kong added 0.18% and Shanghai finished up 0.92%.

But US stocks followed Europe’s lead, with the Dow Jones Industrial Average sliding 1.64% to stand at 16,240.1 points in midday trading. The broad-based S&P 500 fell 1.63% to 1,934.88, while the tech-rich Nasdaq Composite Index dropped 2.05% to 4,730.09 points.

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