European stocks close lower, with protests in China and comments from the ECB

Europe’s main stock markets closed lower on Monday (28) as fears over protests against China’s “covid-zero” policy contaminated investor risk appetite. In addition, comments “hawkish” of European Central Bank (ECB) directors, who continue to point to higher interest rates ahead in order to control inflation, contributed to pressure the indices.

The pan-European Stoxx 600 index fell 0.65% to 437.86 points. In London, the FTSE 100 fell by 0.17%, to 7,474.02 points, pressured by shares in the oil sector, such as BP (-0.94%) and Shell (-0.21%), which followed the movement of the oil in the futures market.

Despite relaxing restrictions in some regions of the country on Monday, Chinese authorities reaffirmed their commitment to the covid-zero strategy, even after crowds protested in the streets.

For Stifel, it is yet to be determined how the protests will unfold and whether or not the demonstrations will have a significant impact on adjusting the country’s health protocols. “Some are hopeful that the government might respond with an easing or easing of restrictions. Others, however, suggest that Beijing may see this undisciplined behavior as a precursor to ‘flexing its muscles’, maintaining controls and reiterating the need to protect the country as a whole,” says the investment bank.

According to Nigel Green, chief executive of the deVere Group, global stock markets are “scared” by the Chinese protests. “The public scenes of anger in major cities such as Shanghai and Beijing are an unprecedented challenge to the Xi Jinping government. Nobody knows how the protests will develop, how long they might last and how the government will respond to the situation,” he said.

Green believes that even if Beijing imposes a tough crackdown on protests, this is likely to be the beginning of the end of Covid. “He will not show weakness by any means, but Xi can now adjust the timetable for ending China’s lockdowns to avoid further embarrassing and confusing public challenges,” he adds.

Fears about China’s economy join intense concerns about the global economic slowdown amid high inflation. ECB head Klaas Knot said on Monday that it will be necessary to prepare for a “prolonged period” of monetary tightening in the euro zone. The president of the institution, Christine Lagarde, warned that, at the moment, interest rates “are and should continue to be the main tool for combating inflation”.

In Frankfurt, the DAX dropped 1.09%, at 14,383.36 points, the Parisian CAC 40 dropped 0.70%, at 6,665.20 and the Milanese FTSE MIB recorded losses of 1.12%, at 24,440.88 .

In Madrid, the Ibex 35 index fell 1.11%, to 8,323.90 points. Finally, on the Lisbon stock exchange, the PSI 20 dropped 1.01% to 5,818.76 points.