European Stocks Slide as Covid Threatens to Undermine Reopening

29 Jun 2021 · 3rd Party Analysis

European Stocks Slide as Covid Threatens to Undermine Reopening


In Summary

  • European bourses decline as virus woes renew concerns over a travel ban
  • Wall Street rivals remain strong and push to new records on Monday

Markets across Europe have slumped in the first trading day of the week with travel stocks leading the losses. Renewed concerns over the rapid spread of the Delta coronavirus variant, particularly in the UK, have caused authorities to reconsider their reopening plans, which pushed European shares lower on Monday.

The pan-Continental Stoxx Europe 600 ended lower by 0.59%, or 2.69 points, to 454.94 points with the travel and leisure index hitting a one month low as it dropped 4.4%. Spain’s IBEX35 declined the most of all the European benchmark indexes, and finished the session down by 1.99%, or 181.30 points, to 8,913.70 points. France’s CAC40 declined 0.98%, or 64.85 points, to 6,558.02 points. The UK’s FTSE100 tumbled 0.88%, or 63.10 points, to end the session at 7,072.97 points, while the German DAX skittered down 0.34%, or 53.79 points, to 15,554.18.

European shares yesterday pulled back from their record highs on the news that Germany is considering a ban on British travellers to the European Union, regardless of their vaccination status. The rather drastic step against the backdrop of a looming reopening is an effort to contain the highly contagious Delta Covid variant.

Investors rushed to offload travel and leisure stocks, causing airline companies such as International Consolidated Airlines, Easyjet, Ryanair and Wizz Air to drop between 4% and 6% each. Energy stocks also deepened losses and fell 2.3% alongside a drop in oil prices.

Technology stocks, however, turned out to be among the few winners on Monday as they climbed moderately by 0.4% supported by investors’ demand for pandemic-resistant sectors.

Concerns on Reopening Date Slides European Stocks

In the longer term, European stocks are on a tear in the first half of 2021, rivalling their Wall Street peers. Investors in Europe favoured a broad array of sectors throughout the first six months of the year. During the lockdown period, they piled into growth stocks, technology in particular, but later as the economy reopened, market participants rotated to value stocks, which tend to be more tied to economic activity.

Despite the heightened demand for European bourses, stocks on the other side of the Atlantic have posted a stronger and more vigorous rally since the pandemic began in March 2020. MSCI’s US index has jumped 95% from its bottom on March 23, 2020, when the coronavirus shock roiled the financial markets. The European equivalent, for the same period, is up 62%.

This year, the region-wide Stoxx Europe 600 has reaped solid gains year-to-date, gaining a little under 14%. Its closest rival on Wall Street, the broad-market S&P500 index has advanced almost 16% for the same period.

While European shares tilted to the downside yesterday, US equities kept moving higher and the S&P500 and the Nasdaq Composite notched new all-time highs. The bountiful monetary stimulus by the Federal Reserve, coupled with the cash injected into the US economy by the government, have been boosting the valuations of stocks in every sector.

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