China virus fears drag down European stocks ahead of ECB policy decision

Reuters , Thursday 23 Jan 2020

People wearing masks are seen at a subway station in Shanghai, China January 23, 2020 (Photo: Reuters)

European shares fell on Thursday, hit by worries over the spread of a new flu-like virus in China, with investors also bracing for the European Central Bank's first policy decision of the year.

The pan-European STOXX 600 index dropped 0.3% and is headed for its steepest weekly decline in three months, with China-exposed mining stocks as well as those of airlines, hotels and luxury goods makers posting steep losses.

China is putting on lockdown a city of 11 million people considered the epicentre of a new coronavirus outbreak that has killed 17 and infected nearly 600.

Investors will also keep a close watch on the ECB's launch of a broad review of its policy under chief Christine Lagarde that is likely to see her redefine the central bank's main goal and how to achieve it.

The ECB is expected to keep its monetary policy unchanged when it announces its decision at 1245 GMT, which will be followed by Lagarde's news conference at 1330 GMT.

"Lagarde is expected to put in place a two-part approach - one focusing on tools available to policymakers to achieve their inflation goal ... the other on financial stability and communication," Swissquote Bank senior analyst Ipek Ozkardeskaya said.

"The ECB under Lagarde could question the benefit and sustainability of negative rates and massive bond purchases," Ozkardeskaya said.

Auto stocks hit fresh three-month lows after U.S. President Donald Trump threatened to impose high tariffs on imports of cars from the European Union if the bloc doesn't agree to a trade deal.

Leading gains on the STOXX 600 were shares of Danish enzymes maker Novozymes after it topped estimates for quarterly operating profit, and Apple-supplier STMicroelectronics after it posted quarterly sales and gross margin above the mid-point of its forecast.

Italy's FTMIB rose 0.5% and was an exception among regional bourses as the country's economy minister, Roberto Gualtieri, said the ruling coalition was committed to maintaining government stability despite the resignation of Luigi Di Maio as head of the co-governing 5 Star Movement.

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