European Stocks Slump as Lockdown Concerns Outweigh Stimulus Bet


European shares dropped to a three-week low as concerns over Covid-19 restrictions offset optimism about government stimulus and corporate earnings, fueling an exit from cyclical sectors.

The Stoxx Europe 600 Index fell 0.8% by the close in London to the lowest level since Jan. 5, with economically sensitive industries such as banks and automakers pacing the retreat, while healthcare and personal care sectors outperformed.

The travel and leisure equities index tumbled 1.9% as France is set to go into another lockdown, the U.K. considers quarantining arriving travelers in hotels, and Israel barred foreign flights from entering the country. International Consolidated Airlines Group SA and Ryanair Holdings Plc fell 7.7% and 4.1%, respectively, while hotelier Accor SA dropped 5.1%.

Travel Stocks, EDF Fall; Boohoo, Philips Up: EMEA Equity Movers

European stocks are trading near their highest since last February, but have remained in a range in recent weeks as investors are concerned that Covid-19 restrictions might halt the economic recovery. The mood today was also spoiled by the top U.S. Senate Democrat saying that lawmakers would try to pass stimulus in a month at the earliest, denying the market of another impetus.

European Stocks Slump as Lockdown Concerns Outweigh Stimulus Bet

“Concerns that additional and stricter restrictions will prolong the economic rebound in the wake of the pandemic are weighing on market confidence,” said David Madden, an analyst at CMC Markets UK.

Meanwhile, Electricite de France SA tumbled as much as 19%, the most on record, after it was reported that the European Commission wants to take another six months to discuss regulatory reforms for the utility. The French Finance Ministry later said the commission hasn’t requested extra time for ongoing talks.

On the bright side, Morgan Stanley is predicting a “solid” fourth-quarter earnings season after upside surprises in macroeconomic data. Guidance for the year ahead will be the “swing factor,” though, with the focus on the outlook for cyclicals, where valuations are now “rich,” strategists including Ross MacDonald wrote in a note.

In other news, online fashion retailers Boohoo Group Plc and Asos Plc rose 4.7% and 5.6%, respectively, as they seek to rescue ailing U.K. retail brands Debenhams and Topshop.

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