US and European equities fell on Friday as euphoria over president Joe Biden’s spending plans gave way to concerns about coronavirus restrictions in Asia and faltering economic activity in Europe.
Wall Street’s S&P 500 slipped 0.5 per cent at the opening bell, with the Nasdaq Composite dipping 0.3 per cent, pushing both indices away from historic peaks struck in recent days.
The decline in New York followed selling in Europe, where the continent-wide Stoxx 600 fell 0.7 per cent by late afternoon, while the UK’s FTSE 100 benchmark fell 0.5 per cent. Germany’s Xetra Dax lost 0.2 per cent and France’s CAC 40 moved 0.8 per cent lower.
IHS Markit’s latest purchasing managers’ indices — which have been eagerly anticipated by investors keen to gauge the impact of the latest social restrictions — showed a broad decline in European activity in January.
For the eurozone as a whole, the composite survey, which includes manufacturing and services, gave a reading of 47.5, narrowly below forecasts and down from 49.1 in December. A reading above 50 indicates activity is growing.
France fared worse than expected, with a composite number of 47, below the 49 expected by economists polled by Reuters. Germany managed to exceed expectations with a reading of 50.8, but that was still down from the previous month’s 52. And the UK did worst, registering 40.6 for the composite figure, even below the 45.5 anticipated by economists.
“Growth, which was widely anticipated for 2021, has essentially been pushed back to later in the year,” said Dean Cheeseman, portfolio manager at Janus Henderson. He added though that the market response was likely to be measured, as some softening was “already widely anticipated”.
Adding to the downbeat mood were data from the Office for National Statistics, which showed that the UK’s retail sales rose less than expected in December. The latest figures revealed that the volume of sales by value climbed just 0.3 per cent in December from the previous month, even though shops reopened across England.
The data also confirmed that the 1.9 per cent fall in the volume of sales in 2020 was the biggest since records began in 1997.
The UK pound traded 0.4 per cent lower against the dollar after the PMIs were released, reversing course after a strong run in recent days driven by vaccine optimism. Covid-19 jabs have been administered to more than 4.9m people in the country. The pound remains more than 0.5 higher for the week.
Jane Foley, head of FX strategy at Rabobank, said that while the Brexit trade deal agreed on Christmas Eve may have brought some relief to sterling in recent weeks, the stronger sentiment in the currency was also the result of “optimism about the UK recovery drawn from the relatively fast pace of the vaccine rollout and from related hopes that the [Bank of England] will be able to avoid a negative bank rate”. In Asia, Hong Kong’s Hang Seng index fell 1.6 per cent, Japan’s benchmark Topix fell 0.2 per cent and South Korea’s Kospi 200 lost 0.6 per cent.