European stocks recovered on Tuesday after declines in the previous session prompted by concerns over a more easily spreadable coronavirus strain that emerged in the UK.
The regional Stoxx 600 index rose 1 per cent in early trades, having fallen by 2.3 per cent on Monday as more than 40 countries closed their borders to UK travellers. Germany’s Xetra Dax added 1.2 per cent and the UK’s FTSE 100 rose 0.3 per cent.
“Markets are trying to balance short-term risk with the long-term outlook that coronavirus vaccines will be rolled out effectively into next year,” said Emmanuel Cao, head of European equity strategy at Barclays.
He added that investors had become fearful of selling out of a vaccine-led equities rally too early. “In this kind of environment, whenever the market has a pullback people buy the dip. The direction of travel is still towards some return to normality as long as vaccine efficacy isn’t put into question by this new strain of the virus.”
Randeep Somel, portfolio manager at M&G, warned that market moves were often sharper in the days before Christmas than they usually would be, because of thin trading volumes.
“We’ve hit that period of time now where equities in general are very thinly traded so any issue is going to be magnified in any direction, and it will stay like this until probably the first full week of January.”
The market mood also turned more bullish after the World Health Organization said on Monday evening that although the new variant of coronavirus was more infectious, it was likely that people could still be vaccinated against it.
The FTSE All World index had its worst day in three weeks on Monday, losing 0.8 per cent. The global benchmark was flat on Tuesday.
Japan’s Topix dropped 1.6 per cent on Tuesday while Australia’s S&P/ASX 200 lost 1.1 per cent and South Korea’s Kospi shed 1.6 per cent. In China, the CSI 300 index of Shanghai and Shenzhen-listed stocks moved down 1.6 per cent.
The weakness in Asia came after investors in the region worried that the more transmissible Covid-19 strain could lead to further lockdowns and curb global travel.
Hong Kong’s Hang Seng index initially rose on Tuesday morning but soon followed other Asian markets lower, slipping 0.7 per cent a day after the city banned incoming flights from the UK in response to the new strain.
Trading in oil markets was negative again a day after the biggest fall for Brent crude in over a month. The international benchmark lost 1.8 per cent to $50.04 a barrel on Tuesday in Asia.
The UK pound weakened after a volatile session on Monday, weighed down by the government’s strict new lockdown measures over Christmas and deadlocked talks over a Brexit trade agreement with the EU. Sterling slipped 0.2 per cent to $1.34 while the dollar index rose 0.1 per cent.