European stocks lose momentum as Covid-19 vaccine rally fades

European equities turned lower on Thursday, after three days of gains, as a surge in Covid-19 cases in the US damped exuberance about the prospect of a vaccine becoming available by the end of the year.

The regional benchmark Stoxx Europe 600 index dropped 0.7 per cent by lunchtime in London, while the UK’s FTSE 100 slipped 0.6 per cent and Germany’s Xetra Dax lost about 1 per cent.

US futures markets also pointed towards a lacklustre session for stocks when Wall Street opens for trade. Futures contracts on the Nasdaq 100 index, which is dominated by names such as Apple, Amazon and Facebook that have benefited during the pandemic, traded flat. Those on the more broad-based S&P 500 fell by 0.4 per cent.

The Stoxx was still up more than 5 per cent this week, after a rally triggered by Monday’s announcement from Pfizer and its German partner BioNTech that their experimental Covid-19 vaccine was found to be more than 90 per cent effective in a late-stage trial.

Thursday’s shift in market sentiment came as anxiety grew over the worsening global caseload. New York’s governor announced late on Wednesday a move to limit social gatherings to contain rising infections heading into the Thanksgiving holiday weekend.

Deutsche Bank analysts said a vaccine was “unlikely to come soon enough to prevent the continued second wave of the virus in numerous countries”.

“It was surprising how positively European markets reacted to the news of the vaccine,” said Peter Westaway, head of European investment strategy at Vanguard. He pointed out that, in the previous three sessions, the Stoxx had outperformed Wall Street’s S&P 500 even after adjusting for exchange-rate movements. “I’d be surprised if we get another bounce as big as this.”

Financials, energy and consumer-exposed stocks — sectors that would benefit from economic growth spurred by a coronavirus vaccine — were the three worst performers on the Stoxx 600, while technology companies pushed higher.

Investors sought the relative safety of haven assets instead, taking the yield on the 10-year US Treasury down 0.05 percentage points to 0.94 per cent. Gold edged up 0.3 per cent to $1,869 a troy ounce.

Meanwhile, sterling fell 0.9 per cent against the euro to purchase €1.113, after data showed the UK’s economic recovery was slowing despite huge government support programmes. UK gross domestic product grew by a lower-than-expected 1.1 per cent in September from the previous month, following a 2.2 per monthly gain in August.

“We are broadly negative on the pound,” said Georgina Taylor, a multi-asset fund manager at Invesco, citing Britain’s post-Brexit trade negotiations with the EU and other nations, and the warning by US president-elect Joe Biden that Brexit should not destabilise the Northern Ireland peace process.

“There is some nervousness now over that US-UK political and trade relationship,” Ms Taylor said.

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