European Stocks Slip Amid Worries of New Wave of Infections

(Bloomberg) --

European stocks ended lower Monday as investors weighed the risk of seeing a second wave of coronavirus inflections after countries in the region eased lockdown rules in a bid to restart their economies.

The Stoxx Europe 600 Index ended 0.4% lower. Basic resources fell the most among industries, reversing early gains. ArcelorMittal tumbled 16% after the steelmaker said it will raise about $2 billion in shares and convertible notes to cut debt and bolster its financial position.

U.K. stocks inched up, with the FTSE 250 Index of mid-caps ending 0.1% higher. Prime Minister Boris Johnson announced the “first careful steps” to relaxing restrictions.

The OMX Copenhagen 25 Index turned positive for the year, the first among European stock benchmarks to reverse steep losses triggered by the spread of the virus, helped by pharma shares including Novo Nordisk A/S.

While the pandemic remains a key concern, France, Italy and the U.K. all reported the fewest deaths since March and governments around the world have given more details on how their economies will gradually restart. European equities have rallied more than 20% since March lows on the optimism of stimulus and the easing in the number of new infections.

“Although the news is largely encouraging, it is too early to say that we are out of the woods,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “Meanwhile, as economies open up, investors will be concerned about whether it’s possible to avoid a significant threat of a second wave.”

JPMorgan Chase & Co. strategists led by Mislav Matejka poured cold water on prospects for the cheaper and more volatile shares that benefit from an economic recovery. They said that while there will be attempts at a reflation trade, with relief bounces in and cyclicals, these rotations won’t be able to be sustained for as long as bond yields are constrained, oil is directionless, inflation forwards are down, lending standards are tightened, and core inflation, wage growth and labor market remain weak. In the meantime, tech and defensive stocks are likely to remain the winners, they said.

Investor positioning points to continuing caution. Equity funds saw their largest redemption in the week through May 6 since the March market crash, with a $16.2 billion outflow, according to Bank of America Corp. and EPFR Global data. In the meantime, cash funds continued to see inflows.

©2020 Bloomberg L.P.