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European stock markets dip amid Covid worries

Covid worries

The FTSE 100 dropped 0.8%, while the DAX declined 0.3% and the CAC 40 shed 0.2%

European stock markets dipped at the open on Friday, as worrying recent COVID-19 figures overshadowed optimism about a possible vaccine.

Major stock markets across the continent and in the UK opened lower. Analysts said sentiment was depressed by a revival of concerns about the COVID-19 second wave currently sweeping Europe and the US.

In France, the number of people requiring hospitalisation rose to a record level yesterday, while here in the UK the number of people infected in a single day surged by nearly 50% to over 33,000, said Michael Hewson, chief market analyst at CMC Markets.

He said, with both France and the UK already in the midst of a temporary lockdown, there is a concern that unless the case rate slows, any relaxation of restrictions could take longer to unfold, and increase the longer term potential for economic damage along with that.

The FTSE 100 slipped 0.8% at the open in London, while the DAX shed 0.3% in Frankfurt and the CAC 40 dipped 0.2% in Paris.

The immediate threat of the second wave overshadowed the optimism that had reigned earlier in the week surrounding Pfizer and BioNTech’s potential COVID-19 vaccine.

News on Monday that the vaccine candidate was inducing an immune response in 90% of cases sparked frenzied trading activity around the world. Investors dumped tech stocks and bond-like defensive plays in favour of value stocks like banks and energy companies.

The speed and size of the rotation, as well as the low quality nature of the stocks that rebounded the most, point to short covering, rather than fresh capital being deployed to new long positions, Barclays’ European Equity Team, led by Emmanuel Cau, wrote in a note sent to clients on Friday.

Barclays said the investor rotation towards value stocks still “has legs, as value remains under owned and still lags the higher yields, but will be gradual.”

Late on Thursday, the heads of the Federal Reserve, ECB, and Bank of England all warned that a vaccine would not bring an immediate end to society’s problems during a virtual central banking conference.

They all shared similar concerns that a potential Covid-19 vaccine would not end the economic challenges of the pandemic, said Jim Reid, a senior strategist at Deutsche Bank.

Futures were mostly higher in the US. S&P 500 futures were 0.2% higher, while Dow Jones futures were flat and Nasdaq futures were up 0.5%.

Stocks fell in Asia overnight. Japan’s Nikkei fell 0.5%, the Hong Kong Hang Seng dropped 0.3%, and the Shanghai Composite declined by 0.8%. In Australia, the ASX 200 fell 0.2%. South Korea’s KOSPI was a notable outlier, rising 0.7%.

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