Europe midday: Falls extend as US pops China's balloon, rate fears persist

European shares extended losses on Monday after Friday's US payrolls data sparked worries about a longer timetable for interest rate rises, while tensions between Washington and Beijing were heightened after a Chinese surveillance balloon was shot down in American airspace.

The pan-European Stoxx 600 index was down 1% at 1155 GMT, with all major bourses lower. Friday's better-than-expected US jobs growth data hit hopes that the Federal reserve would pausing monetary tightening.

“It’s glass half empty time on financial markets as unease spreads about a deteriorating geo-political backdrop and realisation that more interest rate hikes are set to be inflicted on economies,” said Hargreaves Lansdown analyst Susannah Streeter.

“The shooting down of a suspected Chinese spy balloon off the coast of South Carolina has dashed hopes that reproachment between Washington and China could be achieved, causing a slide on the Hang Seng in Hong Kong and the Shanghai Composite.”

“There is a chance this could be a short-lived wobble, given that the US State Department appears to have kept the diplomatic doors open, suggesting a planned visit to China by US State Secretary Anthony Blinken could happen as soon as conditions allow.”

In economic news, eurozone retail sales fell a little more than expected in December, according to figures released by Eurostat.

Sales declined 2.7% on the month following a 1.2% increase in November and versus expectations for a 2.5% fall. On the year, eurozone retail sales were 2.8% lower in December, following a 2.5% decline the month before.

Separate data showed German factory orders bounced back in December led by large-scale order demand.

Factory orders rose 3.2% in December compared with a 4.4% fall in November on a price-adjusted basis, the statistics office Destatis said on Monday.

The increase was mainly driven by large-scale orders, in particular for electricity distribution apparatus, engines and turbines, and air and spacecraft machinery, Destatis said. Excluding these, orders fell 0.6% in December.

Eurozone investor morale in February showed improvement for the fourth consecutive month, but was still in negative territory as worries over a stagnant economy remained, a Sentix survey showed on Monday.

The research firm’s index for the single currency bloc came in at -8.0 points for February from -17.5 in January, against forecasts of -12.8.

“The increase of 9.5 points signals that a recession is off the table for the time being. Instead, the scenario of stagnation is gaining in contour,” said Sentix managing director Patrick Hussy in a statement.

“The absence of an energy crisis and the rosy corporate news are contributing to the turnaround from the original recessionary path. However, the following must be critically observed: So far, the improvement in all subcomponents is running at a negative level.”

In equity news, miners were at the forefront after gold producer Newmont made a $16.9bn for Australia's Newcrest Mining, at a 21% premium to the pre-announcement stock price.

Reporting by Frank Prenesti for Sharecast.com