Equity markets softened further on Friday as investors weighed the worsening coronavirus pandemic against optimism about potential vaccines.
Europe’s Stoxx 600 fell 0.2 per cent in early trades, while London’s FTSE 100 sank about 0.6 per cent. Economically sensitive sectors, which had rallied earlier in the week on vaccine optimism, led the declines: energy and real estate were among the Stoxx’s worst-performing stocks in early trading, while technology pushed higher.
Brent crude, the international benchmark which has rallied this week on hopes that a Covid-19 vaccine would boost economic demand, fell 0.8 per cent to $43.19 a barrel, while gold, a haven asset, rose 0.2 per cent to $1,879 a troy ounce.
“The warning by some central bankers that the vaccine euphoria may be premature coupled with new infection records around the globe continued to put off equity markets,” said Armin Peter, head of debt capital markets at UBS, “The euphoria is certainly wearing off.”
Upbeat vaccine news fuelled a furious rally in risk assets at the start of the week, even as global cases of and deaths from coronavirus continued to soar. The deteriorating situation has led France to extend its nationwide lockdown, and the US city of Chicago to issue a 30-day stay-at-home advisory.
Investors’ appetite for risk reversed course in the middle of the week, as the reality of the worsening pandemic sank in and analysts warned that manufacturing and distributing vaccines at scale would take time.
“Immunising most of the world’s population could prove logistically challenging, especially in light of widespread scepticism about the safety of the vaccine,” said analysts at BCA Research.
There were signs of brighter sentiment on Wall Street. Futures contracts indicated that the blue-chip S&P 500 index would rise 0.5 per cent and the tech-heavy Nasdaq would climb 0.6 per cent — despite continued uncertainty about whether US president Donald Trump will concede last week’s election to president-elect Joe Biden.
“The political impasse in the US adds another worry,” said Padhraic Garvey, regional head of research for the Americas at ING. “As many had feared, the administration’s main focus in the wake of the elections no longer appears to be on getting a new stimulus package across the line or even stepping up efforts to tackle surging Covid numbers.”
Analysts had hoped that a support package would be approved before the election, and have raised concerns that the lack of further fiscal support will stymie the economic recovery.
In Asia, equities fell across the board after Mr Trump signed an executive order prohibiting US investors from holding shares in companies linked to China’s military. China’s CSI 300 index slipped 1.1 per cent and Japan’s Topix slid 1.3 per cent.