European stocks weak despite favourable Chinese output data

Economic and human cost of new Covid-19 variants weigh on investor sentiment

Chinese markets had been lifted by news that the country’s economy, the world’s second-biggest, grew 6.5 per cent in the fourth quarter.

Chinese markets had been lifted by news that the country’s economy, the world’s second-biggest, grew 6.5 per cent in the fourth quarter.

 

European equity markets struggled for direction on Monday as strong economic data from China vied with concerns over a double-dip recession in the UK and the eurozone.

Chinese markets had been lifted by news that the country’s economy, the world’s second-biggest, grew 6.5 per cent in the fourth quarter - a faster rate than before the coronavirus pandemic, and above expectations. Economic output expanded by 2.3 per cent over the course of 2020, easily outstripping other big economies.

The mainland CSI 300 stock index rose 1.1 per cent, while Hong Kong’s Hang Seng index pushed 1 per cent higher.

Expansion

European stocks were muted by comparison. The continent-wide Stoxx 600 index slipped 0.1 per cent in early trading, while Germany’s Xetra Dax was flat. London’s FTSE 100 benchmark edged 0.1 per cent lower.

The pace of expansion in China’s output should feed through to a variety of industries, analysts said. “In regards to Europe, it’s particularly positive,” said Hani Redha, portfolio manager at PineBridge Investments, highlighting China’s reliance on sectors such as manufacturing and infrastructure, where faster growth bodes well for European stocks.

But the spread of new variants of Covid-19 - and the economic cost of extended winter lockdowns to control the virus - continue to whittle away positive sentiment generated by the rollout of vaccines.

Pause

“The virus is continuing to spread, there’s just a little bit of a pause in the markets, as they take on how virulent this new strain is, and how long this is likely to go on for,” said Dean Cheeseman, portfolio manager at Janus Henderson.

Investors were weighing the prospect of vaccinations against the realities of new lockdowns, said Armin Peter, global head of debt syndicate at UBS. “The market has gone quite a way ahead of itself, I think now it’s trying to rebalance.”

US markets were closed on Monday for Martin Luther King day.

The oil market was also flat, with Brent crude, the international marker, fetching $55 a barrel.

Elsewhere in Asia markets, Japan’s Topix shed 0.6 per cent, the Kospi 200 in South Korea fell 2.4 per cent, while the S&P/ASX 200 in Australia dipped 0.8 per cent. – Copyright The Financial Times Limited 2021