European stocks mixed in ‘choppy’ markets, China Covid fears weigh

London — European stock indexes were mixed in early trading on Thursday as global recession fears weighed on markets and soaring Covid-19 cases in China countered earlier optimism about the country dropping its strict zero-Covid policy.

China's health system has been overwhelmed after the country reversed its lockdown and testing regimes earlier in December. The US, India, Italy, Japan and Taiwan said they would require Covid-19 tests for travellers from China.

At 0951 GMT, the MSCI world equity index, which tracks shares in 47 countries, was down 0.1% on the day. MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.7%.

After opening in the red, European stocks were mixed. The Stoxx 600 was little changed on the day, London's FTSE 100 was down 0.3% and Germany's DAX was up 0.2% .

Lower liquidity during the holiday period and a lack of news from central banks means market moves can be “choppy”, lacking consistent direction, said Craig Erlam, senior market analyst at Oanda.

Erlam said that uncertainty about how China's policy reversal would affect global supply chains could become more of a focus for investors in the coming days, but that there was not enough information yet.

“We appear to just be drifting into 2023 at this point,” he said.

Investors were also kept cautious due to fears of an economic slowdown. Risk appetite was subdued for much of 2022 as global central banks raised interest rates in an attempt to bring down inflation.

The S&P 500 is on track for its biggest annual drop since 2008 and many investors are predicting a recession in 2023.

Markets were pricing in a 71% chance of a 25-basis point rate hike when the US Federal Reserve holds a policy review in February, with US rates expected to peak in the first half of 2023.

The Fed raised interest rates by 50 bps earlier in December after delivering four consecutive 75 bps hikes in the year, but it has said it may need to keep higher interest rates for longer.

US weekly jobless claims numbers are due later today.

The US dollar index was down 0.2% at 104.130 and the euro was up 0.4% at $1.06515.

The British pound was up 0.3% at $1.2055, while the dollar was down 0.6% against the Japanese yen at around 133.615.

The 10-year US Treasury yield was at 3.8599%, still close to the previous session's six-week high of 3.89%.

Eurozone government bond yields edged lower, with the benchmark 10-year yield down three basis points at 2.481% .

Japan’s 20-year government bond yield jumped to its highest since 2014 after the Bank of Japan did unscheduled emergency bond-buying early in the session.

Oil prices slipped, hurt by the uncertainty over China and central bank rate hikes.

Reuters