London — European equities fell in early Tuesday trading as risk-aversion swept markets, with a resurgence of coronavirus cases threatening the global economic recovery and caution ahead of US elections on November 3.

Wall Street had its worst day in a month on Monday, and Asian markets also fell overnight.

The MSCI world equity index, which tracks shares in 49 countries, was down 0.1% at 08.28am GMT, having erased some losses overnight after dropping to a 19-day low in the previous session. MSCI’s main European index was at a one-month low, down 0.5%.

The Stoxx 600 also touched new one-month lows in early London trading, down 0.4% on the day, as weakness in miners and carmakers offset upbeat results from UK blue-chip companies HSBC and BP.

“It’s difficult to escape the feeling that investors are undergoing much higher levels of apprehension about how events over the next few days, as well as the next few weeks, are likely to play out, with respect to the prospect of tighter restrictions and new lockdowns,” Michael Hewson, chief market analyst at CMC Markets UK, wrote in a note to clients.

The US has seen record Covid-19 infections, while in France authorities are looking at options for tighter lockdown measures as the virus has kept spreading despite some of the tightest restrictions in Europe. In Italy, there were protests against lockdown restrictions on Monday, with violence reported in Milan and Turin.

A lack of progress towards US fiscal stimulus also dampened sentiment. US House of Representatives speaker Nancy Pelosi is “optimistic” a Covid-19 relief deal can be reached before the elections, her spokesperson said on Monday, while White House economic adviser Larry Kudlow said talks have, slowed, but are continuing.

UBS wrote in a note to clients that, regardless of who wins the US elections, a fiscal stimulus bill would pass soon after.

“Though we expect a fiscal stimulus to pass regardless of the electoral outcome, a ‘blue wave’ would likely make its size bigger and passage faster,” UBS said, referring to the possibility of a big victory for Democrat Joe Biden.

But CMC Markets’ Hewson said any fiscal stimulus plan would not be able to come in until after a potential Biden inauguration, which would be in January 2021.

With one week until the US elections, Wall Street’s “fear gauge”, the Cboe volatility index, hit its highest closing level since September 3.

Currency markets did not show risk-aversion to the same extent as equities, with the dollar holding firm against a basket of currencies at 93.036 at 8.45am GMT.

The riskier Australian and New Zealand dollar saw small gains. The euro was flat against the dollar and euro-sterling was also steady.

Brexit talks in London have been extended until Wednesday. Prime Minister Boris Johnson said Britain’s decision on whether to agree a Brexit deal with the EU is “entirely separate” from the US election result.

Eurozone government bond yields were broadly steady, with little appetite for major moves before Thursday’s European Central Bank (ECB) meeting. The benchmark 10-year German bund was at -0.578%.

Oil prices rose after recent sharp losses, but sentiment was still muted, with Brent crude up 48c, or 1.19%, at $40.94 a barrel at 9am GMT. US oil (WTI) gained 39c, or 1.01%, to $38.95 a barrel.

On the vaccine front, hopes rose after AstraZeneca said on Monday that its shot developed with the University of Oxford produced an immune response in both young and old adults.

But sentiment was dampened by a UK study, which found that antibodies against the new coronavirus declined rapidly in the British population during its summer, suggesting protection after infection may not be long-lasting.


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