WATCH: European markets pull back over COVID third wave fears
European stocks were mostly lower on Tuesday as growing concern about a COVID-19 third wave and international tensions with China combined to prompt a move to "risk off."
"UK markets are weakening amid a push away from value today, with fears over future restrictions denting sentiment around the reflation trade," said Joshua Mahony, senior market analyst at IG. "Meanwhile, EU efforts to limit vaccine exports to the UK also threaten to set back a successful vaccine programme."
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Early in the day, 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.”
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." Tough new fines to deter international travel were announced on Tuesday.
"There is clearly a growing concern that summer may be heavily restricted thanks to the growing number of Brazilian Covid throughout Europe," Mahoney said.
"While the vaccination may significantly reduce the hospitalisations and extreme cases of Manaus Covid, the government seems likely to play it safe given the fear of further mutations if cases rise."
British Airways-owner IAG (IAG.L) fell 4.5%, EasyJet (EZJ.L) dropped 3.3%, and engine maker Rolls-Royce (RR.L) was down 5.5%. In Germany, Lufthansa (LHA.DE) dropped 3.8% and MTU Aero Engines (MTX.F) shed 1%.
Data published on Tuesday morning showed Britain's unemployment rate ticked lower in January, which surprised economists. The pound briefly 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).
"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."