European stocks drop to 5-month low amid rising Covid concerns

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European stocks fell for the third day in a row, bringing the regional benchmark to its lowest level since May, amid rising expectations of further government measures to slow the spread of the coronavirus.

The regional Stoxx 600 index was down 1.7% by mid-morning on Wednesday and has lost nearly 5% since the end of last week as the Frankfurt, Paris and London stock exchanges suffered periods of selling.

Angela Merkel, German Chancellor and French President Emmanuel Macron are expected to announce new restrictions on Wednesday to stem the second wave of the worsening pandemic across the continent.

In the UK, data released by the government this week showed coronavirus cases, hospitalizations and daily deaths are all increasing.

Alexis Gray, investment strategist at Vanguard, said it had become clear that new restrictions imposed on Europe to reverse another outbreak of the virus had been insufficient, meaning more were likely to come. As a result, “the economic outlook has darkened,” she said.

“We are facing unprecedented uncertainty and this is what the market is grappling with,” added Ms. Gray.

However, Samy Chaar, chief economist at Lombard Odier, said there was a “limit to this episode of volatility”.

“As Europe closes, Asia reopens,” he said. “It’s very different from the start of the year where we saw everyone’s convergence stop.”

The lockdowns – which weighed heavily on economic output during the initial wave of the pandemic – are also more targeted than in March, while stimulus measures have already been “designed” so that policymakers have the ability to “them”. expand or increase them, ”Mr. Chaar said.

The main European stock markets remained strongly in the red by mid-morning. The CAC 40 in Paris fell 2.2%, while the Xetra Dax in Frankfurt sank 2.5% and the FTSE 100 in London fell 1.2%.

Bank stocks – which have been under pressure during the pandemic – have been among the hardest hit despite optimistic earnings this week from lenders such as Deutsche Bank and HSBC. Stoxx’s travel subsector fell about 1.6%, as energy stocks followed the decline in the price of oil. Brent, the international benchmark, fell 3% to less than $ 40 a barrel, reflecting growing concerns over fuel demand.

US stock index futures came under selling pressure during the European morning, suggesting that gloomy sentiment could also spread to Wall Street later Wednesday. Futures contracts tracked by the S&P 500 index fell about 1.2%.

The price of US and German government debt edged up, suggesting growing demand for safe-haven assets. The 10-year US Treasury yield fell about 0.03 percentage point to 0.75%, while its German counterpart fell 0.029 percentage point to minus 0.64%. The dollar rose 0.3% against a basket of six major currencies.

Analysts said the upcoming U.S. election is expected to be a source of uproar in stock markets over the coming weeks. The Vix Index, a measure of expected volatility over the next month, traded above 36 on Wednesday morning, well above its long-term average of 20.

“The investment environment has entered a period of greater volatility due to uncertainty over the November 3 US presidential election, the timing of a new US stimulus package, as well as concerns about the ‘impact of increasing cases of Covid-19 in Western countries recovery,’ according to Credit Suisse’s investment strategy unit.

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