Julien Ponthus, Yoruk Bahceli

LONDON, (Reuters) – The COVID-19 lockdowns are back to haunt Europe’s economic prospects. Investors were forced to reassess their portfolios on Friday and to sell vulnerable assets like bank stocks and the euro.

After the Czech Republic, Slovakia, Hungary and Slovakia reimposed restrictions, Austria placed itself under lockdown. Germany’s minister of health refused to allow one.

Germany’s foreign Minister ruled out mandatory vaccinations and a lockdown in order to soothe markets, according to Tabloid Bild.

This shook the mood of European equity markets. German and French shares were at record levels thanks to strong earnings.

The pan-European equity market index rose by 80% to March 2020. It fell half a percentage on Friday.

Stephane Ekolo is a Global Equity Strategist at Tradition.

An index of European banks fell 2.5% as markets began to reduce their bets on the euro zone’s interest rate increases for next year. This was its largest daily decline since September.

It is now unclear to what degree lockdowns may impact earnings estimates for the fourth quarter. The benchmark is up 51% according to Refinitiv I/B/E/S, but it’s still below 60% for Q3.

This is still in line with the 21% growth forecast for businesses.

There were warning signs that Europe was in trouble even before the recent COVID recovery. The U.S. data is trailing Europe by more than one year according to the Citi economic surprise indexes.

Oxford Economics noted that the decline in hospitality turnover is also evident, pointing out Germany’s drop of 3.5% in September.

“Markets know for a while now that winter is difficult” said Emmanuel Cau (head of European equity strategy). Barclays (LON:).

If it gets worse, the setback will be painful for many. BofA’s popular monthly investor survey revealed that funds were bullish on the euro zone, with 33% being “overweight”, and EU banks particularly in favor.

Cau claims it’s premature to expect lockdowns to be a game changer and that investors are taking profits from recent rally highs. Inflation-adjusted bond yields that are deeply negative probably mean that global stock investors will continue to chase cash.

There will be winners. Healthcare stocks rose by 1% Friday while technology gained 0.6%.

BUND BOOST

As the 30-year-old government borrowing cost fell below 0%, investors made an immediate beeline to buy bonds. This turned Germany’s whole yield curve negative.

The benchmark euro-area yield for ten-years fell 6 basis points to -0.342%, which is the lowest level since September.

Euro fell more than 6 years to a low against Swiss franc. It also reached 16 month lows in relation to the greenback.

Peter McCallum is a rates strategist for Mizuho. “It’s just growing, that story about the pandemic still not being over in Europe, and that’s an knee-jerk flight towards quality.”

He said, “The more this becomes a topic and the market thinks about a dovish ECB we’ve got some space to fill the (10 year Bund yield) gap to -0.45%.”

Market watchers have begun to look outside of Europe.

Deutsche Bank (DE) Noting that at the beginning of winter vaccination rates for Austria and Germany, 64% and 69%, were much higher than those in the U.S. (58% respectively),

“All the headlines in Europe are currently focused on the United States, but will this make the United States more vulnerable to the cold than the European countries? According to the bank,