European equities rebounded on Monday after the worst week since June with beaten-down financial stocks leading the way higher.
The region-wide Stoxx 600 rallied 1.5 per cent, while London’s FTSE 100 climbed 1.6 per cent and the German Dax jumped 1.9 per cent.
Financials in Europe led gains following a sell-off last week that triggered a Stoxx banking index slide to the lowest level since at least the late 1990s. In early Monday trading lenders including Deutsche Bank, Commerzbank and BNP Paribas were up more than 3 per cent. Other sectors that had recently been under pressure including travel and leisure companies also perked up during Monday’s broad rally.
Global equities had a turbulent five days last week, with US stocks down for a fourth consecutive week and European bourses on track for their worst month since March. Investors were spooked by rising coronavirus case numbers, renewed lockdowns in some regions and economic data that indicated the recovery was slowing.
Oil prices slipped 0.7 per cent on Monday to $41.60 per barrel on concerns of reduced demand as the pandemic worsens.
After the strong recovery since March, fears that markets could take a turn for the worse in the fourth quarter of the year could “become a self-fulfilling prophecy. If this week turns out to have the same kind of dynamic, then we might see a more prolonged change in sentiment,” said Armin Peter, head of debt capital markets at UBS.
In the UK, traders and businesses are watching for whether further restrictions will be announced this week after London was put on a national “watch list”.
Whether new restrictions are announced or not, “it’s the resurgence of the pandemic that’s going to cause people to change their behaviour and the market has cottoned on to that in the last couple of weeks,” said Dhaval Joshi, chief European investment strategist at BCA Research.
Investors will also be closely watching the outcome of Brexit negotiations which resume on Tuesday, as the month remaining until what EU chief negotiator Michel Barnier has said is the “realistic deadline” for a deal edges closer.
Sterling rose 0.3 per cent in early dealings on Monday to trade at $1.2776, rising back above its 200-day moving average where it remained stuck at the tail-end of last week.
In the US, futures contracts indicated the benchmark S&P 500 would gain 0.6 per cent and the Nasdaq 100 would rise 0.7 per cent when Wall Street opens later on Monday.
American politics is likely to take the spotlight this week, with President Donald Trump’s first election debate with Joe Biden, his Democratic rival for president, scheduled for Tuesday.
The election is key for investors on both sides of the Atlantic, with traders uncertain about both the likely outcome and whether Mr Trump will concede if he is not re-elected.
Investors are also hoping Congress will resume talks about and manage to approve further stimulus measures, though many think a package is unlikely to come before the election.
Stocks in the Asia-Pacific region had an upbeat start to the week, with Hong Kong’s Hang Seng up 1 per cent, Japan’s Topix 1.7 per cent higher and China’s CSI 300 up 0.3 per cent, in an extension of the tech rally that bolstered Wall Street on Friday.