European equities struggled for traction on Tuesday as anxiety grew about the economic cost of the pandemic and the short timeframe for US lawmakers to approve further fiscal stimulus before November’s election.
After ending Monday lower, the region-wide Stoxx 600 share index was flat in early trading, while Frankfurt’s Xetra Dax slipped 0.2 per cent and London’s FTSE 100 crept up 0.1 per cent. As infection numbers rose in the region, Ireland announced a new six-week lockdown which will apply for six weeks from midnight on Wednesday, while countries including Austria and Italy also imposed stricter measures.
Energy stocks led the declines, tracking the price of oil lower. Brent crude, the international benchmark, was down 0.3 per cent at $42.50 a barrel in morning trading, as traders weighed up the impact on demand from the latest Covid-19 measures.
On Monday, technical glitches at exchange group Euronext caused a three-hour outage that affected Paris, Amsterdam and Lisbon. However, shares appeared to be trading as normal on Tuesday.
Bright spots in corporate earnings have failed to spark a lift in the wider market in recent sessions. Swiss bank UBS rose 2 per cent in early trading after it announced a near-doubling in its third-quarter profits on Tuesday.
Lacklustre moves tell you “people are still worried”, said Neil Birrell, chief investment officer at asset manager Premier Miton Investors. He said there might be disappointment to come from Europe’s third-quarter earnings season, reflecting analysts’ expectations that were “a bit optimistic” given the state of the region’s economy.
In the US, the deadline for further fiscal support measures to be approved by lawmakers is fast approaching. Nancy Pelosi, the Democratic Speaker of the House of Representatives, said on Sunday that a package would need to be agreed within 48 hours to pass before the presidential election next month.
“First and foremost, it’s the politics which are driving markets,” said Klaus Baader, global chief economist at Société Générale.
He said it was unlikely a deal would be agreed in time before the poll, which would “leave a significant hole in personal incomes”. But he added that the rise in household savings rates over the course of the pandemic would cushion the financial impact for some citizens until more support arrived.
Joost Van Leenders, senior investment strategist at Kempen Capital Management, said the urgency of renewed stimulus measures would increase as the pandemic worsened, particularly if conditions deteriorated in the US, which was making markets “more shaky”.
US stocks slid for the fourth time in the past five sessions on Monday, with the benchmark S&P 500 closing down 1.6 per cent. Futures contracts tipped the large-cap index to rise 0.6 per cent at Wall Street’s opening bell.
Analysts at Goldman Sachs said a definitive win for Democratic challenger Joe Biden in the presidential election would be likely to mean the passing of a larger fiscal stimulus package. If Democrats gain control of both houses of Congress, US economic output could be boosted by a combination of more fiscal spending and “friendlier trade policy”, they said.
Asian equities had a mixed session. Tokyo’s Topix share index fell 0.8 per cent, Hong Kong’s Hang Seng was flat and China’s CSI 300 rose 0.8 per cent.