European stocks stayed near a one-month low on Tuesday, following the biggest daily fall since September, as concerns grow that the worsening pandemic will damp business activity.
The region-wide Stoxx Europe 600 index, which lost 1.8 per cent on Monday, shed another 0.1 per cent while the CAC 40 in Paris was down 0.7 per cent and Frankfurt’s Xetra Dax slipped 0.1 per cent.
The falls came as investors digested the implications of new lockdown measures announced by countries including Spain and Italy to stem a surge in infections.
“The reality is that we have Covid-19 spikes in the EU and US and a gap of a few months before vaccines kick in with Germany mentioning a soft lockdown,” said Sebastien Galy, senior macro strategist at Nordea Asset Management. The economic recovery from the pandemic is “teetering on the edges of [being] a W-shaped reality”, he added.
However, stocks in the US were poised for a partial recovery when Wall Street opens later on Tuesday, with the S&P 500 tipped to rise 0.4 per cent. Overnight, the large-cap benchmark closed down 1.9 per cent, marking its biggest daily loss in more than a month as coronavirus case numbers in the US rose sharply.
Gregory Perdon, co-chief investment officer at Arbuthnot Latham, said Monday’s widespread stock sell-off was “a reasonable readjustment for the prospect for further lockdowns in Europe”. But risk assets were unlikely to “fall off a cliff”, as they did in March, because the monetary “taps are on full stream” and central banks will do “whatever it takes” to minimise disruption.
Bank stocks were a rare bright spot on Tuesday, after HSBC became the latest lender to report better than expected third-quarter results and Santander upgraded its full-year forecasts. Shares in HSBC, which said it would consider paying a “conservative” 2020 dividend, rose 7 per cent. The Stoxx 600 sub-index comprising the region’s banks climbed 1.3 per cent.
Oil prices also rose, with Brent crude, the international benchmark, up 1 per cent to $40.86 a barrel.
In the US, negotiations about further fiscal stimulus measures will continue just a week ahead of November’s presidential election. On Monday Nancy Pelosi, the Democratic Speaker of the House of Representatives, expressed optimism about reaching an agreement with Republican lawmakers and the White House.
Tai Hui, chief Asia market strategist at JPMorgan Asset Management, said markets would be quick to react to any sign of progress in the talks over a deal. But “the potential optimism around a deal could be damped as we approach election day. The recent surge in infections in the US and Europe is also denting market sentiment,” he added.
Equities in much of the Asia-Pacific region fell. South Korea’s Kospi finished 0.6 per cent lower, Australia’s S&P/ASX 200 dropped 1.7 per cent and Hong Kong’s Hang Seng fell 0.5 per cent.
But China’s CSI 300 index of Shanghai and Shenzhen-listed stocks rose 0.2 per cent as onshore investors looked ahead to the latest five-year policy plan being thrashed out in Beijing. The Fifth Plenum, a meeting of the Communist party leadership, runs until Thursday and will determine the priorities for the country in the coming years.
Mr Hui said the latest plan was likely to advocate for greater self-reliance in essential technologies including semiconductor development. However, he said that “China still needs to keep its market open to the rest of the world, since it is unrealistic to have a fully closed supply chain”.