European Stocks Decline on Concern Over Lockdown Extension Risks

European shares fell as the U.K.’s warning of a lockdown extension spurred worries of a longer-lasting economic impact from the pandemic, with travel and leisure shares leading losses.

The Stoxx Europe 600 Index dropped 0.6% by the close, as cyclical and value shares came under pressure. Almost all sectors were in the red, with miners, banks and energy shares among the biggest decliners. Chipmaker ASML Holding N.V. retreated 1.6% after U.S. giant Intel Corp. said most chips will be made internally by 2023.

European stocks are sliding from an almost 11-month high as current virus concerns overshadow longer-term optimism over the rollout of vaccines. In a blow to those investors who were betting on a reopening of economies, U.K. Prime Minister Boris Johnson signaled that the country’s restrictions could last into summer. In the euro area, PMI data showed services remained in contraction, while manufacturing expanded in line with estimates.

“The tightening of restrictions into 2021 has therefore led to a renewed slowdown in activity across Europe, especially in the U.K.,” said Goldman Sachs Group Inc. strategists including Sven Jari Stehn and Alain Durre in a note. They see “near-term risks skewed to the downside, before growth picks up sharply from the spring.“

European Stocks Decline on Concern Over Lockdown Extension Risks

The economic figures came a day after European Central Bank President Christine Lagarde signaled that the euro-area is headed for a double-dip recession.

“Virus cases are at a record and with more lockdowns on the horizon, markets will price in Lagarde’s warning of a new short recession,” said Diego Fernandez, chief investment officer at A&G Banca Privada in Madrid.

In Italy, the FTSE MIB tumbled 1.5%, the most in a month, as allies of Italian Prime Minister Giuseppe Conte raise the specter of early elections in a bid to win over lawmakers.

Any further risk of a new vote “could negatively affect share prices,” Citigroup Inc. analysts said in a note. The country’s lenders were among the fallers on the Stoxx 600 Banks Index, and Citigroup said it expects “Italian financials to remain volatile until a final solution materializes.”

Separately, European stock funds had an inflow of $1.3 billion in the week through Jan. 20, Bank of America said in a report, citing EPFR Global data.

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