German lockdown extension and China tensions hit European stocks

German lockdown extension and China tensions hit European stocks

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3 min read
Angela Merkel
German Chancellor Angela Merkel said her country was in a 'very serious situation' as leaders agreed a one month extension to national restrictions. Photo: Michael Kappeler/AP
 
German Chancellor Angela Merkel said her country was in a ‘very serious situation’ as leaders agreed a one month extension to national restrictions. Photo: Michael Kappeler/AP

European stocks fell on Tuesday as rising concerns about a COVID-19 third wave and growing international tensions with China combined to prompt a move to “risk off.”

The FTSE 100 (^FTSE) dropped 0.4% shortly before lunchtime in London, while the DAX (^GDAXI) was 0.3% lower in Frankfurt and the CAC 40 (^FCHI) fell 0.4% in Paris.

Stocks were hit by news of a one-month extension to lockdown measures in Germany, agreed in the early hours of Tuesday morning. Harsh restrictions will remain in place over Easter until 18 April in a bid to curb the spread of what officials have dubbed a “third wave” of COVID-19.

“We are now in a very, very serious situation,” German chancellor Angela Merkel told reporters at an early morning news conference in Berlin, according to Bloomberg. “The case numbers are rising exponentially and intensive-care beds are filling up again.”

READ MORE: UK unemployment unexpectedly falls to 5%

Naeem Aslam, chief market analyst at Avatrade, said investors were concerned that rising case numbers would prompt leaders elsewhere to “roll back some of the restrictive measures in Europe.”

UK prime minister Boris Johnson on Tuesday said third wave currently sweeping Europe was likely to “wash up on our shores.”

“I suspect we will feel those affects in due course,” Johnson said.

News of the German lockdown extension and tough new fines in the UK for international travel knocked the aviation sector.

British Airways-owner IAG (IAG.L) fell 4.7%, EasyJet (EZJ.L) dropped 5%, and engine maker Rolls-Royce (RR.L) was down 3.7%. In Germany, Lufthansa (LHA.DE) dropped 4% and MTU Aero Engines (MTX.F) shed 2%.

Data published on Tuesday morning showed Britain’s unemployment rate ticked lower in January, which surprised economists. The pound strengthened against the euro in the wake of the figures, rising 0.1% to €1.1616 (GBPEUR=X). Sterling weakened against a resurgent dollar, slipping to a six week low (GBPUSD=X).

READ MORE: Travel stocks hit as Brits face £5,000 fine for traveling abroad

Sentiment in Europe wasn’t helped by a sell-off in Asia overnight. Japan’s Nikkei (^N225) sunk 0.6% and the South Korean’s KOSPI (^KS11) shed 1%.

In China, the Hong Kong Hang Seng (^HSI) slumped 1.3%, the Shanghai Composite (000001.SS) dropped 0.9%, and the Shenzen Component (399001.SZ) slid 1.1%.

“The underperformance of Chinese bourses is likely due to the US, UK and Canada joining the EU to impose sanctions on the country over alleged human rights abuses on the Uyghurs in Xinjiang,” said Jim Reid, a senior strategist at Deutsche Bank.

The UK announced travel bans and froze assets of four individuals in connection with abuses in China, part of a coordinated move led by the United States. UK foreign secretary Dominic Raab said the treatment of the Uyghur Muslims in Xinjiang was “one of the worst human rights crises of our time.

Wall Street looked set for a lower open. S&P 500 futures (ES=F) were down 0.4%, Dow Jones futures (YM=F) were 0.5% lower, and Nasdaq futures (NQ=F) were off 0.1%.