European stocks retreat, set to end 2020 with losses

(Reuters) – European stocks retreated on Thursday as investors squared positions on the last trading day of the year, while tighter coronavirus restrictions in Britain and a move by the United States to raise tariffs on some EU products dampened sentiment.

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Trading volumes were thin, with many traders away on New Year’s Eve and major European bourses closed.

The pan-European STOXX 600 index recorded a 3.8% drop in 2020 – lagging its Asian and Wall Street peers that traded near record highs – as a rapid surge in coronavirus cases and concerns about a chaotic Brexit weighed on the continent’s markets.

Still, the index remains only 7% below its record high after rallying about 50% from March lows, while hopes of more stimulus, the rollout of coronavirus vaccines and a Brexit trade deal sealed last week raised bets of a stronger recovery in 2021.

“Vaccines will inspire a global recovery, central banks will leave rates a zero even if inflation rises to fund exploding government deficits everywhere,” Jeffrey Halley, a senior market analyst at Oanda wrote in a note.

“The search for yield in a zero percent world flooded with unlimited free money for the world’s central banks, means the K-shaped recovery, asset price inflation scenario seems a certainty.”

In light trading, UK’s FTSE 100 fell 1.7% and France’s CAC 40 dropped 0.4%. Both markets will close early on Thursday.

The FTSE 100 – on course for its worst year since the 2008 financial crisis – suffered a bigger blow as Prime Minister Boris Johnson ordered millions more people to live under the strictest COVID-19 restrictions to counter a new virus variant. [.L]

The German DAX ended 2020 with a 3.5% gain – just below all-time highs – helped by strong demand for technology stocks and better growth prospects major trading partner China.

Lender-heavy Italy’s FTSE MIB was down 5.4% for the year, while Spain’s IBEX – among the worst performers in the region – was on course for yearly losses of more than 15%.

The tourism-reliant economy was hit by pandemic restrictions, while a consolidation in Spain’s banking sector – that brought the number of banks to 10, down from 55 prior to the 2008 economic crisis – failed to impress investors.

France’s Airbus, Safran and liquor makers Pernod Ricard and Remy Cointreau fell more than 1% after the U.S. government said it would raise tariffs on EU products including aircraft components and wines from France and Germany.

The move was the latest twist in a 16-year battle over aircraft subsidies between Washington and Brussels.

French insurer Axa slipped 0.7% as it agreed to sell its businesses in Greece to Italian competitor Generali for 165 million euros ($202.9 million).

European markets will be closed on Friday for New Year’s Day.

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