European Stocks Eke Out Gains as M&A Outweighs Trump Virus Woes

(Bloomberg) -- European equities erased earlier losses caused by concerns over U.S. President Donald Trump testing positive for the coronavirus and eked out a small gain.

The Stoxx 600 index rose 0.3% on Friday, paring a drop of as much as 1.2% and ending the week with a 2% advance. While retail, technology and automaker stocks led the declines, construction and media shares advanced. European equities managed to squeeze out a gain even as the S&P 500 declined 0.8%.

Trump announced early Friday that he and First Lady Melania Trump had tested positive for Covid-19, shortly after one of his closest aides, Hope Hicks, had fallen ill with the coronavirus. The news fueled concerns among market players about the outcome of the U.S. election and Trump’s ability to campaign and govern. Trump’s symptoms are said to be “mild” according to several press reports.

“I do not think that President Trump’s Covid-19 diagnosis is a game changer,” said Chris Dyer, director of global equity at Eaton Vance. “Following the significant outperformance of U.S. equities that has persisted for more than a decade, I would encourage investors to diversify or rebalance toward non-U.S. equities.” Such stocks are more geared to a global recovery, will be less impacted by the fallout from a rise in the U.S. government debt relative to GDP, and trade at discounts to U.S. equities, he added.

According to Berenberg Bank’s Ulrich Urbahn, the rising odds of Joe Biden’s victory in the U.S. election bode well for European and emerging-market equities. European stocks have underperformed the U.S. since the March rebound.

Market players are also intently watching stimulus negotiations. U.S. House Speaker Nancy Pelosi said today that negotiations on a new package with the White House will press ahead and Trump’s Covid-19 diagnosis might change the tenor of the talks by emphasizing the seriousness of the pandemic.

Among the biggest equity gainers, the focus was on the news that Spanish engineering company ACS is holding talks to sell its industrial division to French toll-road operator Vinci SA for about 5.2 billion euros ($6.1 billion). Both stocks surged, with ACS jumping 26% and Vinci adding 4.4%.

While the pandemic continues to weigh on M&A activity -- the value of announced deals involving a European company fell 11% year-on-year in the third quarter to $266 billion, according to data compiled by Bloomberg -- there have been signs of a pick-up in the region. European deal volumes in the three months ended Sept. 30, which includes the typically quiet summer period, were up 63% on the second quarter.

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Investors also continued watching the developments around Brexit. The FTSE 100 index added 0.4% and the FTSE 250 closed little changed as the pound climbed on optimism over Prime Minister Boris Johnson’s plan to holds talks Saturday with European Commission President Ursula von der Leyen in an attempt to unlock a deal.

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