Europe midday: Equity markets extend losses on China woes

European stocks suffered heavy losses as investors largely ignored encouraging regional data amid sliding oil prices and another dismal performance in China.

At midday, the benchmark Stoxx Europe 600 index was down 3.2%, Germany’s DAX was 3.6% lower and France’s CAC 40 was off 2.8%.

Stocks in Asia were under pressure as concerns about economic growth in China continued to rattle investors after the People’s Bank of China guided the yuan lower again. The PBoC set the yuan’s midpoint at 6.5646 to the dollar, which was 0.5% lower than Wednesday’s fix.

“Not only was this the biggest drop between daily fixings since the 3% devaluation in August, but it is also marked the yuan’s lowest level against the US dollar for three and a half years,” said David Morrison, market analyst at SpreadCo.

Trading in China was halted less than 15 minutes into the session after the CSI300 benchmark fell more than 7%, triggering the market’s circuit breakers for the second time this week.

As China woes intensified, basic resources – which are highly dependent on Chinese demand – tumbled, with the Stoxx 600 index for the sector down a whopping 5.3%.

Energy-related stocks were also firmly under the cosh, with the sub-index for oil and gas 4.4% lower as oil prices declined amid worries about oversupply. West Texas Intermediate was down 2.5% to $33.12 a barrel and Brent crude was 1.8% weaker at $33.63.

As investors looked for somewhere safe to park their cash, gold prices rallied. Spot gold rose to a two-month high of $1,102.80 an ounce, but later pared gains to trade up 0.5% at $1098.95.

The flight to safety also benefited German government bonds, with the yield on the 10-year Bund reaching its lowest level in over a month. Yields move inversely to prices.

At the same time, the safe-haven appeal of the yen was evident, as the dollar traded down 0.8% against the Japanese currency.

In corporate news, beleaguered German car maker Volkswagen was in the red following a report by German newspaper Sueddeutsche Zeitung suggesting the company may have to buy back 115,000 cars in the US due to the emissions scandal.

London-listed retailer Marks and Spencer edged higher after announcing that its chief executive Marc Bolland will step down this year.

Pandora was also in the black after the Danish jewellery retailer said it plans to open 200 to 300 stores a year between 2016 and 2018, as it reported a 40% jump in 2015 sales.

With China very much at the forefront of investors’ minds, better-than-expected readings on Eurozone unemployment and economic confidence failed to lift the mood.

The unemployment rate fell to its lowest level in November since October 2011, according to figures released by Eurostat.

It dropped to 10.5% from 10.6% in October and 11.5% in the same month of 2014, beating economists’ expectations for a rate of 10.7%.

Meanwhile, more data from the official EU data office showed Eurozone economic confidence unexpectedly improved in December.

The headline Eurozone sentiment index rose to 106.8 from the previous month's 106.1 and ahead of consensus estimates of 106.

Eurozone consumer confidence was at -5.7, up from -5.9 the previous month and estimates for the same, while the business climate indicator rose to 0.41, above November's 0.36 and forecasts for 0.39.

Retail sales figures for the euro bloc were less cheery, however, showing a seasonally-adjusted 0.3% drop in November compared with a 0.2% fall the previous month and missing expectations for a 0.2% increase.

On the year, retail sales rose 1.4% versus expectations for a 2% gain.

Still to come on the macroeconomic front, US initial jobless claims are at 1330 GMT.