FTSE hits three-week low amid fears of economic slowdown

LONDON, UNITED KINGDOM - 2021/07/12: People wearing facemasks walk past a view of the London's skyline, at London Bridge Thames path, opposite the London City Hall. (Photo by Thomas Krych/SOPA Images/LightRocket via Getty Images)
In London, the FTSE 100 fell 0.9% after opening to a three-week low. Photo: Thomas Krych/SOPA Images/LightRocket via Getty Images

European stock markets ended mixed on Thursday amid fears of an economic slowdown as the pandemic continues to disrupt global supply chains.

The FTSE 100 (^FTSE) fell 1% after hitting a three-week low, while the French CAC (^FCHI) was 0.5% higher and the DAX (^GDAXI) was 0.2% up in Germany.

London’s benchmark index hit its lowest level since 20 August during the session, dipping below the 7,000 points mark at one point, before later recovering some ground. Energy stocks, financial firms, miners, tech companies and travel firms are all down on the day.

It comes as the European Central Bank (ECB) decided to slow the pace of the emergency economic aid it put in place during the pandemic this quarter.

At its policy meeting, the bank said it was taking the step towards unwinding the pandemic emergency purchase programme (PEPP) at a "moderately lower pace".

The size of the PEPP envelope still remained at €1.85tn (£1.58tn, $2.19tn). Due to end in March 2022, it was first put in place in March 2020 to support the eurozone economy through the health crisis.

It also held interest rates at 0.0%, as widely expected by economists, as well as keeping the interest rates on the marginal lending facility and the deposit facility at 0.25% and -0.5% respectively.

Read more: ECB's Lagarde warns Delta variant casting 'shadow' over Europe's recovery

“After a decent start to the week, European markets have undergone a sharp change in sentiment the past two days with the DAX falling sharply to a one-month low yesterday, and US markets also suffering a little bit of a crisis of confidence, although the losses there have been modest thus far,” Michael Hewson of CMC Markets said.

“It’s been notable that some of the bullishness of August is now giving way to speculation as to how much central banks can ease back on current levels of stimulus in an economic environment that is already starting to show signs of slowing.”

Over on Wall Street, the S&P 500 (^GSPC) was trading flat at the European close, and the tech-heavy Nasdaq (^IXIC) climbed 0.2%. The Dow Jones (^DJI) edged 0.1% higher.

On Wednesday, the US Federal Reserve warned that the American economy “downshifted slightly” in August, amid rising COVID-19 cases and mounting supply chain problems and labour shortages.

Watch: Economic jitters knock Wall Street lower

It said: “The deceleration in economic activity was largely attributable to a pullback in dining out, travel and tourism in most districts, reflecting safety concerns due to the rise of the Delta variant, and, in a few cases, international travel restrictions.”

The comments caused investors to be more cautious, meaning the dollar was holding firm.

Asian shares were mixed overnight, with the Hang Seng (^HSI) tumbling 2.2% as tech stocks led the decline. It came after China's government on Wednesday summoned gaming firms to ensure they implement new rules for the sector.

The Nikkei (^N225) was down 0.6% as Japan said it would extend emergency COVID-19 restrictions in Tokyo and other regions until the end of this month. However, the Shanghai Composite (000001.SS) managed to eke out a 0.5% gain.

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