Watch: Eurozone business activity shrinks as lockdowns tighten
European and Wall Street stocks fell into the red on Friday against a backdrop of economic pessimism, including fresh lockdown restrictions on the bloc and in Asia. The FTSE 100 (^FTSE) closed 0.30% lower, while the DAX (^GDAXI) slipped 0.35% and the CAC (^FCHI) was 0.7% down.
EU leaders are mulling internal border closures due to rising infection and death rates and various governments are considering extending their lockdown restrictions further in an attempt to curb the spread.
Stocks fell as traders also digested the latest UK retail sales data and public borrowing figures.
Official data published on Friday showed sales, excluding fuel, grew by just 0.4% in December. Economists had forecast month-on-month growth of 0.8%. Meanwhile, the UK government borrowed another £34bn ($46.5bn) in December, an increase of more than 470% compared with December 2019.
Eurozone business activity also shrank again, to a two-month low, as new COVID-19 strains lead to more lockdowns.
Markit’s flash composite PMI for the euro zone, which looks at activity across both manufacturing and services, dropped to 47.5 January, versus 49.1 in December. A reading below 50 represents a contraction in activity.
Chris Williamson, chief business economist at IHS Markit, said a double-dip recession for the euro zone was looking “increasingly inevitable.”
“Tighter COVID-19 restrictions took a further toll on businesses in January,” he said in a statement.
David Madden at CMC Markets said: “It is a broad based sell off, as fears that England’s lockdown might last until summer has impacted most sectors. There are concerns the EU might shut internal borders and there has been chatter the bloc might ban travellers from the UK.
“Even though none of these measures have been confirmed, the very mention of them has soured sentiment in equities. Judging by the mood in relation to restrictions, we are more likely to see further constraints imposed rather than an unwinding of conditions in the near term.”
On Wall Street, the Dow Jones (^DJI) lost 0.44% and the S&P 500 (^GSPC) was 0.25% lower when European stocks closed, as president Biden moves impose tighter restrictions to stop the rapid spread of coronavirus in the States. The tech-heavy Nasdaq (IXIC) slipped 0.2%.
It was an abrupt turnaround from inauguration day optimism on Thursday when stocks hit all-time highs.
A big drag on the Dow was IBM (IBM), which went on a rollercoaster ride after revealing that its fourth quarter revenue fell 6% in the fourth quarter, the stock slumping close to 11%.
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Asian stocks slipped from record highs overnight after a recent rally driven by hopes of US economic stimulus from president Joe Biden.
Stocks also suffered due to concerns of fresh COVID-19 restrictions in China and rising cases in Southeast Asia. China reimposed travel controls after outbreaks in Beijing and other cities of a new virus variant that might be more infectious.
On Friday, China reported 103 new infections, the country's 11th day with more than 100 confirmed cases.
MSCI’s index of Asia-Pacific shares outside Japan retreated after hitting an all-time high of 727.31 on Thursday. The index is up around 8% in January so far.
Richard Hunter, head of markets at Interactive Investor, said: “Markets have stumbled at the end of a generally directionless week.
“The wave of optimism which had gripped the US markets the previous day, as the inauguration of the new President passed without incident, and as investors took hope from some positive political noises around the stimulus package, subsided.”
Oil prices also slipped from the 11-month highs recorded last week amid fears that new coronavirus restrictions in China will reduce demand for crude. China is the world’s biggest oil importer.
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