Europe midday: Stoxx slips lower as ECB bond action fails to stir buyers

by | Mar 12, 2021

European shares extended losses at midday as the European Central Bank’s own bond-buying plans failed to inspire investors.

The pan-European Stoxx 600 index was down 0.54% at 0841 GMT. Regional bourses were mixed, with London’s FTSE 100 0.34% lower after official data showed the economy contracted less than feared in January in response to the latest Covid-19 lockdown.

January GDP showed the economy shrank by 2.9% as the lockdown hit the hospitality and leisure sectors hard. However, it was lower than the 4.9% predicted by economists.

Germany’s DAX was also the red, down 0.7% after solid gains all week.

The ECB ramped up bond buying to prevent a surge in borrowing costs that could threaten the Continent’s economic recovery.

ECB President Christine Lagarde said the bank would buy government debt at a “significantly higher pace than during the first months of this year”. It has set aside 1.85trn (£1.58trn) for buying bonds, but Ms Lagarde said this could be increased “if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation”.

The move is intended to avoid higher borrowing costs in weaker eurozone countries.

“European markets are on the back foot in early trade, with the European Central Banks’s decision to front-load asset purchases doing little to lift sentiment despite the benefits lower yields could have upon borrowing costs,” said IG analyst Joshua Mahony.

“A divergence between US and European yields in response to the ECB PEPP schedule change does come at the detriment of European banks. Coming at the end of a week of major volatility, traders will be watching the US markets with a keen eye amid rising US 10-year yields.”

Benchmark US 10-year yields rose above 1.6% overnight and Mahony said there was a risk traders could shift away from growth and momentum stocks to the detriment of the Nasdaq index.

“Yields are going to be a key driver of sentiment in the months ahead as overheating concerns come into play. With some speculation that we could ultimately see the US 10-year yield hit 2%, the shift towards value and away from growth may still be in its infancy despite the recent fightback,” he said.

In equity news, British luxury goods group Burberry topped the gainers, jumping 5.56% after lifting full year guidance as sales had rebounded strongly since December.

German carmaker Daimler slipped after French rival Renault sold its entire stake in the company at a discount.

Hammerson shares were up 4% despite the shopping centre owner reporting a more-than-doubling of annual losses as the value of its properties dropped and rental income plunged during the Covid-19 crisis.

Meanwhile, shares in housebuilder Berkeley Group fell almost 7% after the firm said it was on track to report annual pretax profit similar to the £504m achieved the year before based on “robust” trading in the four months to the end of February.

Forward sales are expected to be more than £1.7bn at the end of the year on 30 April putting the housebuilder in a strong position to start the next financial year.

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