German lockdown extension and China tensions hit European stocks

German Chancellor Angela Merkel attends a press conference in the Chancellor's Office following consultations between the federal and state governments in Berlin Tuesday, March 23, 2021. Germany extended its lockdown measures by another month and imposed several new restrictions, including largely shutting down public life over Easter, in an effort to drive down the rate of coronavirus infections. (Michael Kappeler/Pool Photo via AP)

German Chancellor Angela Merkel said her country was in a ‘very serious situation’ as leaders agreed a one month extension to national restrictions. Photo: Michael Kappeler/Pool Photo via AP

European stocks fell on Tuesday morning as rising concerns about a COVID-19 third wave and growing international tensions with China combined to prompt a move to “risk off.”

The FTSE 100 (^FTSE) dropped 0.6% at the open in London, while the DAX (^GDAXI) was 0.5% lower in Frankfurt and the CAC 40 (^FCHI) fell 0.5% in Paris.

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.”

“I suspect we will feel those affects in due course,” Johnson said.

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Sentiment wasn’t helped by a sell-off in Asia overnight. Japan’s Nikkei (^N225) sunk 0.6% and the South Korean’s KOSPI (^KS11) shed 1%.

In China, the Hong Kong Hang Seng (^HSI) slumped 1.3%, the Shanghai Composite (000001.SS) dropped 0.9%, and the Shenzen Component (399001.SZ) slid 1.1%.

“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.”

Data published on Tuesday morning showed Britain’s unemployment rate ticked lower in January, which surprised economists. The pound strengthened against the euro in the wake of the figures, rising 0.1% to €1.1616 (GBPEUR=X).

Wall Street looked set for a lower open. S&P 500 futures (ES=F), Dow Jones futures (YM=F), and Nasdaq futures (NQ=F) were all down 0.2%.

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