China virus fear slams European shares

European shares were on pace for their sharpest decline in three weeks on Tuesday, as mounting concerns over a new coronavirus outbreak originating in China sparked a rush to safe-haven bets.

The increased threat of infection, as millions travel for the Lunar New Year holidays, reminded investors of the economic fallout from the Severe Acute Respiratory Syndrome (Sars) crisis in 2003 that killed nearly 800 people.

Long-haul flight operators Air France, Lufthansa and British Airways owner IAG slipped about two percent while China-exposed luxury goods makers including LVMH, Kering, Hermes and Burberry were also among the biggest laggards.

The pan-European STOXX 600 dropped 0.7 percent with all major sub-sectors in negative territory.

“The coronavirus outbreak can cause a massive demand shock, particularly to the consumption of services, especially travel,” said Stephen Innes, a market strategist at AxiCorp.

“Having this outbreak occur in an environment of an already subdued global economy due to the US-China trade war, investor sentiment and reactions are perhaps getting magnified when being viewed through the trade war lens.”

The STOXX 600 index had risen about two percent this month until Monday, touching a record high last week as easing US-China trade tensions and improving economic indicators raised hopes of faster global growth.

Offering some relief to investors, French President Emmanuel Macron said on Monday he had a “great discussion” with US President Donald Trump over a digital tax planned by Paris and said the two countries would work together to avoid a rise in tariffs.

In a data-heavy week, markets will turn to a closely-watched German investors morale survey, due at 1130 GMT, for clues on the health of Europe’s biggest economy.

European Central Bank chief Christine Lagarde’s comments at the central bank’s first policy meeting for the year on Thursday, as well as Eurozone’s purchasing manager’s index data on Friday will also be in focus this week.

A top International Monetary Fund official on Monday said global growth appears to have bottomed out, but there was no rebound in sight and risks ranging from trade tensions to climate shocks makes the outlook uncertain.

Bank stocks SXTP slipped about 1.2 percent as Switzerland’s largest bank UBS Group AG cut its profitability targets.

Bucking the trend was German fashion house Hugo Boss which gained three percent after reporting a better-than-expected fourth-quarter sales growth.

British low-cost airline easyJet also gained 5.5 percent after the company said it expects its first-half performance to improve from last year. - Reuters