COVID comeback threatens fresh setback for European market bulls -Breaking
Julien Ponthus, Yoruk Bahceli
LONDON, Reuters -CoVID-19 lockdowns are back to ruin Europe’s economic prospects. Investors were forced to reassess their portfolios on Friday and to sell vulnerable assets like bank stocks and the euro.
Austria was put under lockdown again days after Slovakia, Hungary, Slovakia, and Czech Republic lifted their curbs. Germany’s health minister did not rule out a similar move.
Germany’s foreign Minister ruled out mandatory vaccinations and a lockdown for tabloid Bild, which did little to soothe markets.
This swept aside the optimistic mood that had prevailed in European equity markets. German and French shares were at record levels thanks to strong earnings.
On Friday, the pan-European equity benchmark, which was up by 80% since March 2020, fell half a point.
Stephane Ekolo is a Global Equity Strategist at Tradition.
The market began to withdraw their wagers about the rise in eurozone interest rates for next year. An index of European Banks plunged 2.5% on Tuesday, marking its worst daily fall since September.
It is now unclear to what degree lockdowns may impact earnings estimates for the fourth quarter. Current Refinitiv II/B/E/S data shows a benchmark increase of 51%, just slightly below 60% in Quarter 3.
However, it still stands out in comparison to predictions for a 21% increase in earnings.
However, there were some troubling signs for Europe long before the COVID revival. 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 are aware that this winter could be hard and that the vaccination rollsout won’t lower lockdown risk by 100 percent” stated Emmanuel Cau, European Equity Strategy Head. Barclays (LON:).
A setback that is more severe, or worsens, can be very painful. BofA’s monthly investor survey was widely followed by funds and showed that they were most bullish about eurozone equities. There was a 33% overweight, while EU banks are especially favoured.
Cau claims it is premature to consider lockdowns a game changer and that investors are taking profits from recent sizzling rallies. Inflation-adjusted bond yields that are deeply negative probably mean that global stock investors will continue to chase cash.
The winners will come out of the game: Healthcare stocks rose by 1% while technology shares gained 0.6%.
The investors made a run for the bonds and turned Germany’s yield curve into a negative. It was August, when Germany’s 30-year government borrowing costs dropped below 0%.
At -0.342%, the benchmark yield in the Euro area, ten-year yields dropped 6 basis points.
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 (rates strategist, Mizuho) stated that “it’s just building” and described the story of the pandemic in Europe not ending.
“The more we make that a trend and get the market to think about a dovish ECB the better, because there’s still some time to close the gap (10-year Bund yield), down to -0.45%,” he said.
Market observers are beginning to look beyond Europe, according to some.
Deutsche Bank (DE:) It was noted that vaccination rates in Austria, Germany and Germany were significantly higher than the U.S. 58% at 64% and 69% respectively on the cusps of winter.
“Although the headlines in Europe are all about the USA at the moment,” the bank wrote. According to the bank,