The selloff is gathering pace across Europe’s stock markets, as lockdown fears rattle trading floors (and home offices).
In London, the FTSE 100 has now shed 148 points, or 2.5%, leaving the index firmly at a six-month low. Property companies, hotel groups, and travel firms continue to be worst hit.
The Europe-wide Stoxx 600 has sunk 2.6% to its lowest level since May, with heavy losses in Paris, Frankfurt, Milan and Madrid.
Germany’s DAX is now down over 3.2% at its lowest level since mid-June, while Italy’s FTSE MIB, Spain’s IBEX and France’s CAC are all at five-month lows.
Michael Hewson of CMC Markets says investors fear that new lockdown measures could last for months, and that governments might not provide the same level of support as in the spring:
It is becoming increasingly apparent that rising infection rates across Europe are now translating into a rise in hospitalisations, as well as a rising death count with both the UK and France posting their highest fatality levels since May as the second coronavirus wave continued to spread across Europe.
Concerns about a second national lockdown in France are also rising ahead of a scheduled national address later this evening by French President Emmanuel Macron. In Germany it is also being reported that Chancellor Merkel is proposing the closure of bars and restaurants for one month, in a move that could well last a lot longer as the weather gets colder.
When equity markets dropped sharply back in February governments in Europe, the US and here in the UK stepped up with massive fiscal support, acting in conjunction with central banks to support their economies. This in turn prompted a strong rebound in equity markets as confidence that politicians would support businesses through what was likely to be a very tough period, helped fuel a rebound in sentiment.
It is not immediately apparent that this fiscal support will be as significant at the second time of asking, hence the sharp slides we are now seeing in equity markets.
Firstly, with a US election only a week away, there doesn’t appear to be any political will to deliver a new fiscal package much before the end of Q1 next year. As for the EU they haven’t even signed off their first fiscal package which is so badly needed by Italy and Spain, let alone put together a new one.
Here in the UK the picture is no less clear with the UK government response resembling a type of economic hokey-cokey, one step in, one step out, as the end of furlough, prompts a number of U-turns as the economic outlook deteriorates.