European equities drifted lower and investors headed for the safety of US government bonds, after a surge in Covid-19 cases in the US damped exuberance about the prospect of a vaccine becoming available by the end of the year.
The regional benchmark Stoxx Europe 600 index dropped 0.3 per cent in early morning trading on Thursday, while the UK’s FTSE 100 and Germany’s Xetra Dax both lost about 0.4 per cent.
The Stoxx was still up around 5 per cent this week after a rally triggered by Monday’s announcement from Pfizer and its German partner BioNTech that their experimental Covid-19 vaccine was found to be more than 90 per cent effective in a late-stage trial.
Thursday’s shift in market sentiment comes as the caseload for coronavirus worsens. New York’s governor announced late on Wednesday a move to limit social gatherings to contain rising infections heading into the Thanksgiving holiday weekend.
Deutsche Bank analysts said a vaccine was “unlikely to come soon enough to prevent the continued second wave of the virus in numerous countries”.
“It was surprising how positively European markets reacted to the news of the vaccine,” said Peter Westaway, head of European investment strategy at Vanguard. He pointed out that, in the previous three sessions, the Stoxx had outperformed Wall Street’s S&P 500, even adjusting for exchange-rate movements. “I’d be surprised if we get another bounce as big as this.”
Financials, real estate and energy stocks — sectors that would benefit from economic growth spurred by a coronavirus vaccine — were among the worst performers on the Stoxx 600, while technology companies edged higher.
Futures markets pointed to a lacklustre session for US equities later in the day. Contracts on the S&P 500 blue-chip index fell about 0.5 per cent and those on the tech-heavy Nasdaq 100 were 0.3 per cent lower.
Investors sought the relative safety of haven assets instead, taking the yield on the 10-year US Treasury down 0.04 percentage points to 0.95 per cent. Gold edged up 0.2 per cent to $1,867 an ounce.
Meanwhile, sterling fell 0.5 per cent against the euro to purchase €1.117, after data showed the UK’s economic recovery was slowing despite the government ploughing hundreds of billions of pounds into business support and tax breaks. UK gross domestic product grew by a lower than expected 1.1 per cent in September from the previous month, following a 2.2 per monthly gain in August.
“We are broadly negative on the pound,” said Georgina Taylor, multi-asset fund manager at Invesco, referring to Britain’s unresolved post-Brexit trade negotiations with the EU and other nations, and a warning by US president-elect Joe Biden that Brexit should not destabilise the Northern Irish peace process. “There is some nervousness now over that US-UK political and trade relationship,” Ms Taylor said.