Europe Stocks Open Lower as Wider Sanctions, Covid Rebound Hit Mood

European Stock Futures

European stock markets opened lower on Tuesday as a fresh round of EU sanctions, a rebound in Covid-19 cases and more signs of red-hot inflation all weighed on sentiment.

By 4:15 AM ET (0815 GMT), The Euro Stoxx 50 was down 53 points or 1.4% while the broader Stoxx 600 Index was down by a similar amount. Germany was the biggest loser among major markets, the DAX losing 1.3%, while Italy’s FTSE MIB outperformed with a drop of only 0.8%.

Among individual stocks, Swedish retailer H & M (ST:HMb) fell 3.1% despite reporting in-line first-quarter sales growth of 23%, while U.K.-based tobacco giant Imperial Brands (LON:IMB) fell 1.1% after it trimmed its profit forecast due to the exit from Russia that it announced last week.

Overnight, the EU agreed to widened its sanctions on Russia in retaliation for its invasion of Ukraine, imposing a ban on exports of luxury goods and cars worth over 50,000 euros. The bloc still shied away from an immediate ban on purchases of Russian energy exports, which are opposed by Germany and some others due to the lack of short-term alternatives.

The luxury sector underperformed on the news: LVMH (PA:LVMH) stock fell 2.4% while Moncler (MI:MONC) fell over 3%.

The euro, however, rose 0.6% against the dollar to $1.1058, supported by better-than-expected industrial production and retail sales data out of China for February. The numbers suggested that the second-most important export market for European businesses is still holding up, although the numbers have been made somewhat obsolete by the lockdowns imposed this week as China battles to contain the Covid-19 virus. The country has locked down both the manufacturing center of Shenzhen and the whole province of Jilin in northeastern China, keeping some 45 million people at home in the biggest lockdowns in over two years.

The dollar, which eased across the board against developed-market currencies in early trading, hit a two-month high against the yuan on fears of an imminent economic slowdown there.

Europe itself is struggling with a revival of the virus – the BA.2 strain of the Omicron variant. After rushing to drop unpopular public health measures in recent weeks, German Health Minister Karl Lauterbach warned that new infections would likely reach a new all-time high in Europe’s largest economy this week. However, the more mild nature of the new dominant strain is ensuring that hospital admissions are still remaining well below previous record highs.

Earlier, the U.K. reported better-than-expected labor market data for February, with the unemployment rate falling to 3.9%, below its pre-pandemic level. Average earnings also outstripped expectations, cementing fears of another interest rate hike from the Bank of England this week. If confirmed, that would be a third hike in as many meetings from the BoE. In the Eurozone, French data showed consumer inflation to be still running well ahead of target at 4.2% on the year in February.

Eurozone industrial production data and the German ZEW Economic Sentiment Index are due later, but the main event on the data calendar will be the release of U.S. producer price inflation at 8:30 AM ET.

The FTSE MIB fell  by 1.83% to 23,001.20. In the cash markets, the DAX  Germany  fell by 2.07%  to 13,638.65. CAC 40  in France  fell by 2.06% to 6,238.37 while the FTSE 100  in the U.K. was down  by 1.30% to 7,099.35 ,at the time of writing.

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