European Stocks Slump Most in Three Weeks on New Lockdown Fears

(Bloomberg) -- European stocks fell the most in more than three weeks, with some of the region’s largest cities facing tighter restrictions as Covid-19 cases surge.

The Stoxx Europe 600 Index closed down 2.1% in London, almost erasing all its gains for October and dropping the most since Sept. 21. Energy and insurance sectors were among the worst decliners.

Londoners will be banned from mixing with other households indoors and Paris is set for a curfew, as European leaders struggle to cope with a jump in new coronavirus cases. The DAX Index and FTSE MIB Index were the worst hit among major markets, down 2.5% or more, as Germany and Italy reported record increases of infections.

After starting October with strong gains, European equities have lost momentum as the pandemic and an impasse in U.S. stimulus talks weigh on investor confidence. The Stoxx 600 is now below its 50- and 200-day moving averages. The earnings season’s start, a Brexit showdown and a polarizing election in the U.S. may also trigger market moves in coming weeks.

“Risks of a total lockdown are rising, as local measures are woefully insufficient,” said John Roe, head of multi-asset funds at Legal & General Investment Management. “We’d wait longer before buying. Velocity of moves matters for us, particularly with virus risks.”

Roland Kaloyan, the head of Societe Generale SA’s European equity strategy, said the economic damage from the new restrictions will be more limited than during the total lockdown seen earlier this year. He recommends focusing on quality growth and cyclical companies that can benefit from government support measures, such as construction materials, miners, digital infrastructure and utilities.

“The European market is reacting to the second wave of restrictions” imposed by governments, he said by phone. “You have granular restrictions in Europe in cities -- they’re trying to reduce social interactions but keep the economy going. It’s a very different approach compared to earlier this year.”

The FTSE 100 Index dropped 1.7%. U.K. Prime Minister Boris Johnson is expected to decide whether to pull out of talks and brace the country for a no-deal exit from the bloc, after Thursday’s summit in Brussels,. Late on Wednesday, Johnson expressed disappointment over the state of talks.

European Commission President Ursula von der Leyen left a leaders’ summit in Brussels after a member of her staff tested positive for Covid-19, highlighting how the virus has disrupted policy planning across the continent.

Among individual stocks, Swiss pharma giant Roche Holding AG weighed the most on the benchmark, falling 3.5% after its third-quarter sales missed analyst estimates. ASML Holding NV retreated 3.5% after yesterday forecasting low double-digit growth for 2021.

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