Europe close: Oil drops to 2004 lows, sending shares lower

Stocks fell after disappointing data from China - amid geopolitical tensions in the Middle East - and a decision by the country's central bank to slightly weaken the currency sent oil futures back to levels not seen since 2004 and weighed on commodities prices.

The benchmark Stoxx Europe 600 index ended down by 1.26%, France’s CAC 40 was 1.26% weaker and Germany’s DAX was off 0.93%.

Caxin's service PMI for China dropped to a 17-month low of 50.2 in December from 51.2 the previous month, but still above the 50 level that separates contraction from expansion.

“News that the Chinese Caixin services PMI came in much lower than expected overnight has stirred fears that in addition to the already struggling manufacturing sector, services are also starting to be in trouble which would certainly not only deepen China's economic woes but also put the likelihood of a sustained economic rebound several months back,” said Markus Huber, senior analyst at Peregrine & Black.

Sentiment was also dented by news that the People's Bank of China set a weaker midpoint for the yuan, adding to concerns about the health of the world’s second-largest economy.

Claims from North Korea that it had successfully tested a miniaturised hydrogen nuclear device also put a damper on the mood.

The latest batch of mixed economic data Stateside did not help matters any despite a strong reading on one measure of the US jobs maket.

According to private consultancy ADP, employers in America added 257,000 jobs in December compared with a downwardly-revised tally of 211,000 jobs in November and expectations for a 200,000 gain.

To take note of, in remarks to broadcaster CNBC US Federal Vice chairman Stanley Fischer said that market expectations for just two [25 basis point] hikes in 2016 “is too low”, four rate hikes, in keeping with the projections submitted by the members of the Federal Open Market Committee at their last meeting, were more “in the ball park”.

Apple suppliers take hit from slowing iPhone sales

On the corporate front, ARM Holdings, whose chips are used in Apple devices, was under the cosh following reports the US tech giant is expected to cut production of the iPhone 6S and 6S Plus by around 30% in the January-March quarter as a result of mounting inventories.

Dialog Semiconductor, which derives a large part of its revenues from Apple, was also firmly in the red.

In terms of sectors, basic resources and energy-related shares were the worst performers.

The Stoxx 600 basic resources index slumped 3.32% amid growing worries about China, on which the sector is highly dependent.

Meanwhile, the sub-index for oil and gas slid 2.08% as oil prices declined, with West Texas Intermediate down 4.9% at $34.28 a barrel and Brent crude 5.4% weaker at $34.54, sliding to a fresh 11-year low.

US Department of Energy figures revealed that gasoline stockpiles jumped by 10.6m barrels in the latest week, the most since 1993.

Three-month copper futures lost 0.5% to $4,612 per metric tonne in LME trading.

On the data front, Markit’s final Eurozone services purchasing managers’ index for December came and went with little fuss, showing a reading of 54.2 versus expectations of 53.9.

Elsewhere, figures from Eurostat showed Eurozone producer prices slipped 0.2% in November from October, in line with economists’ expectations.

On the year, producer prices fell 3.2% compared with forecasts for a 3.1% drop.

Meanwhile, an earlier reading showing prices slid 3.1% in October was revised down to 3.2%.

Aside from the data, investors also digested comments from European Central Bank member Peter Praet, who said in a magazine interview with Belgian weekly Knack that there is no “plan B” to the bank’s current stimulus programme.

Praet said he saw no alternative than to keep pursuing the ECB’s current measures, as he conceded they have not succeeded in boosting Eurozone inflation.

His comments followed figures from Eurostat on Tuesday showing consumer prices rose 0.2% year-on-year compared with expectations for a 0.3% increase and unchanged from November, piling pressure on the ECB to do more to bring inflation back to target.

Euro/dollar edged higher by 0.06% to close at 1.0759 with the yield on the benchmark 10-year Bund little changed at 0.538%, according to Bloomberg data.