Europe midday: Resources pace the decline as China worries grow

European stocks fell on Wednesday, with basic resources pacing the decline following another batch of disappointing data from China and amid rising geopolitical tensions.

At midday, the benchmark Stoxx Europe 600 index was down 1.4%, France’s CAC 40 was 1.6% weaker and Germany’s DAX was off 1.7%.

Caxin's service PMI 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.

Meanwhile, the composite index printed at 49.4 in December compared with 50.5 in November, moving into contraction.

Asian markets ended lower, with the exception of China, where the Shanghai Composite rallied amid reports that Beijing had spent billions buying shares following huge losses in the two previous sessions.

“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 has successfully tested a miniaturised hydrogen nuclear device also weighed on the mood.

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 3.7% amid growing worries about China, on which the sector is highly dependent.

Meanwhile, the sub-index for oil and gas slid 1.9% as oil prices declined, with West Texas Intermediate down 2.5% at $35.08 a barrel and Brent crude 5.6% weaker at $35.12, sliding to a fresh 11-year low.

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.

Still to come on the macroeconomic calendar, the US ADP employment report is at 1315 GMT, while trade balance data is at 1330 GMT. Industrial new orders, ISM non-manufacturing and durable goods orders are all due at 1500 GMT.