European stock markets opened lower on Wednesday, as investors digested bleak European business data and warnings from Federal Reserve policymakers over a “slow” economic recovery from the coronavirus crisis.
The pan-European Stoxx 50 index (^STOXX50E) and Germany’s DAX (^GDAXI) were both trading 0.2% lower, while France’s CAC 40 (^FCHI) was down 0.3% at around 8.30am in London. Britain’s FTSE 100 (^FTSE) was trading flat.
It came as purchasing managers’ index (PMI) data showed output in Spain’s services sector plunging to new record lows in April. The headline index figure for services, making up around half of Spain’s output, sank to 7.1, from 23 in March and 52.1 in February. Figures above 50 show a net balance of firms reporting growth, and figures below 50 show contraction.
Hard-hit Italy also saw activity slide at a record rate, down to 10.8 from 17.4 in March.
Even Sweden, which has curbed activity far less than most other countries, saw activity in its services sector slide to its worst level since the global financial crisis. The PMI figure hit 39, down from 46.1 the previous month.
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It also came after a string of US central bank policymakers struck a downbeat tone over the US economy’s likely recovery from the downturn triggered by the coronavirus pandemic. It comes in spite of many US states easing restrictions on activity.
Chicago Federal Reserve Bank president Charles Evans told journalists the pick-up in activity as restrictions start to ease will “likely be slow at first.” He also described reopening amid a continued pandemic as “a bold decision with pretty high risks,” Reuters reports.
He said it was reasonable to expect growth in the second half of the year in the US, but warned it was only slightly more likely than worse alternatives.
Richard Clarida, vice chair of the Federal Reserve, also called the current crisis “the most severe contraction in activity and surge in unemployment that we’ve seen in our lifetimes.” In an interview with CNBC, he said the unemployment rate was likely to hit levels not seen since the 1940s.
Despite his optimism that the Fed’s wide-ranging interventions could curb lasting damage, he only said a recovery in the second half of the year was “in the range of possibility.”
Meanwhile Atlanta’s Fed president Raphael Bostic said a V-shaped recovery “is going to be very difficult to achieve,” with varied infection rates and susceptibility across the country likely to mean a “diversity of recoveries,” according to Reuters.
Some of the comments had pared gains on US stocks on Tuesday. But futures pointed to a lower open on Wednesday, amid hopes of an easing of US-China tensions and continued economic reopening in many US states.
Markets also rose overnight in Asia as investors saw China’s central bank’s latest fixing of the yuan as a ‘neutral’ move vis-a-vis the US after the currency sank to a one-month low against the dollar on Wednesday.
“The People's Bank of China went a long way to extinguishing one major trade war hotspot by setting the yuan reference rate on a more risk-friendly level,” said Stephen Innes, chief markets strategist at AxiCorp.
The US government has repeatedly criticised China over competitive devaluations in the past, and the latest move appears to nod to Beijing’s pledge to abandon them in an initial trade agreement with the US in January.