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European shares retreat on fears over second virus wave

second virus wave

The banking index led sectoral declines, while travel stocks dropped 0.7%

European shares retreated from eight-month highs on Thursday as surging coronavirus infections raised doubts about a quicker economic rebound and overshadowed several upbeat quarterly earnings reports.

The pan-European STOXX 600 index was down 0.6%, taking some shine off gains of more than 13% this month that had set it on course for its best monthly performance ever.

The banking index led sectoral declines following its best three-day winning streak since the global financial crisis in 2009, while travel stocks fell 0.7% after surging earlier in the week on hopes of a working COVID-19 vaccine.

This is a calibration of, not capitulation from, the ‘vaccine trades’ theme that is getting warmed up, analysts at Mizuho Bank said.

Markets are re-assessing given (the mass availability of a vaccine) may take months, while second/third wave resurgence in Europe and the United States is hitting hospitalisations and invoking the re-imposition of restrictions, they said.

France on Wednesday overtook Russia as the worst affected country in Europe, while Italy surpassed the 1-million infections mark to become one of the top 10 worst-affected countries globally.

The benchmark STOXX 600 has gained more than 40% since a coronavirus-driven crash in March, but it has lagged the U.S. benchmark S&P 500 on fears of a longer road back to pre-pandemic levels of economic activity.

Data on Thursday showed Britain’s economy grew by a slower-than-expected 1.1% in September from August even before the latest restrictions on businesses. London’s FTSE 100 fell 0.8% after posting eight straight days of gains.

We expect the latest lockdowns to leave the size of the UK economy some 15% below pre-virus levels, as of November, said ING economist James Smith.

Importantly, this is not quite as stark as was the case back in March/April when the economy slid by 25%. This time, fewer sectors are shut, while arguably businesses are more geared up for the lockdown, he said.

In company news, German engineering group Siemens shed 4.4% even as it reported better-than-expected profit at its industrial business.

Zurich Insurance Group rose 0.8% as it said its new life insurance business picked up in the third quarter, while Italy’s top insurer Generali lost 0.8% after saying it would not pay the second tranche of the dividend on 2019 results this year.

Financial stocks were the single biggest drag on the STOXX 600 in morning trading.

On the other hand, British luxury brand Burberry jumped 4.2% as it said its sales returned to growth in October.

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