European markets downbeat as row brews between UK and EU over Northern Ireland

LaToya Harding
·Contributor
·3 min read
The UK government extended a grace period for some checks on agricultural and food products imported by retailers to Northern Ireland until 1 October. Above, a checkpoint at Larne Harbour, Northern Ireland. Photo: Charles McQuillan/Getty Images
The UK government extended a grace period for some checks on agricultural and food products imported by retailers to Northern Ireland until 1 October. Above, a checkpoint at Larne Harbour, Northern Ireland. Photo: Charles McQuillan/Getty Images

European stocks fell into the red on Thursday before later staging a small recovery as the EU vowed legal response after the British government unilaterally extended a grace period for checks on food imports to Northern Ireland.

The FTSE 100 (^FTSE) closed 0.37% after being more than 1% during the day, while the CAC (^FCHI) ended the day flat, climbing 0.041% and the DAX (^GDAXI) was 0.18% lower.

The UK government extended a grace period for some checks on agricultural and food products imported by retailers to Northern Ireland until 1 October in a bid to ensure the free flow of goods to the British region.

However, Brussels said the move violated terms of Britain's divorce deal.

"This is the second time that the UK government is set to breach international law," the European Union said in a statement.

Since the UK left the bloc, both sides have accused the other of acting in bad faith in relation to part of their Brexit agreement that covers goods movements to Northern Ireland.

READ MORE: UK and EU 'very far' from solving Brexit disruption in Northern Ireland

A deluge of corporate news and a continuation of the selloff in bond markets also pushed stocks lower.

Spreadex analyst Connor Campbell said: "Once again the European indices were left playing catch-up after major movements in the US and Asian markets yesterday evening.

"Rising bond yields - an issue that briefly went away at the start of the week after their February-ending surge - helped send the Dow a further 120 points lower last night, forcing it back under 31,300. The impact was even more severe in Asia."

"For reference, last night saw the bench 10-year US Treasury bond yields hit 1.477% - still a way off last week's 1.614%, one-year high, but going in the wrong direction from a market perspective. This, in turn, has left the European markets posting similar losses."

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Across the pond, the S&P 500 (^GSPC) rose 0.54% by the European closing bell and the tech-heavy Nasdaq (^IXIC) fell 0.45% after yoyoing after opening. The Dow Jones (^DJI) was 0.48% higher.

It comes after a fall on Wall Street on Wednesday. Traders are concerned that higher inflation may prompt central banks to raise ultra-low interest rates.

"Fed boss, Jerome Powell, is due to speak at an event hosted by the Wall Street journal shortly after 5pm (UK time)," David Madden of CMC Markets said.

"The growing concerns that higher inflation is on the horizon and the subsequent rise in bond yields have impacted the equity markets lately.

"It is likely the central banker will address those worries but in recent speeches he hasn’t been too troubled by the issues. The Fed has a balancing act on its hands as it won’t want to tighten policy anytime soon, while at the same time it won’t want to give off the impression that policy will stay extremely loose forever."

Investors are also anticipating that policies outlined during the annual session of the National People's Congress, a largely ceremonial legislature that convenes on Friday, may point to a tightening of monetary and government stimulus.

Meanwhile, Asian shares fell overnight, following a fall in US stock markets, as another rise in bond yields rattled investors.

Japan's Nikkei 225 (^N225) lost 2.13% while the Hang Seng (^HSI) in Hong Kong dropped 2.12%.The Shanghai Composite index (000001.SS) shed 2.05%.

South Korea's Kospi (^KS11) lost 1.28% after the central bank reported the economy contracted in 2020 for the first time since 1998.

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