European equities struggled for direction on Thursday, after a surge in coronavirus cases in the US and tightening restrictions in Europe held back a rally driven by optimism over Covid-19 vaccines.
The benchmark Stoxx 600 index and Germany’s Xetra Dax were broadly flat in early trades, while the UK’s FTSE 100 fell 0.4 per cent.
The Stoxx has gained 14.4 per cent in November, putting it on course for its strongest month on record, while the FTSE has risen 14 per cent.
But investors’ attention, said strategists at Credit Suisse, had now “seemed to switch back to the growing Covid-19 contagion in the USA”.
Investors were torn between “rising optimism about a future world where vaccines reduce the impact of the pandemic, and current data, which shows how the pandemic is making life harder”, said analysts at ING in a research note.
The moves came after Angela Merkel, Germany’s chancellor, said on Wednesday that the nation’s partial lockdown would last until at least December 20 and might be extended into January.
The US reported 2,046 coronavirus deaths on Wednesday, the highest daily toll since early May, according to data compiled by Johns Hopkins University.
New daily cases in Texas and California hit record highs while New York reported more than 6,000 coronavirus cases in a single day for the first time in seven months.
Data released on Wednesday also showed an unexpected rise in US first-time unemployment claims last week to 778,000, sparking fears the US economic recovery was stalling.
Technology shares were among the best performers on the Stoxx on Thursday morning, as money flowed back to companies set to benefit from coronavirus lockdowns. The economically sensitive energy sector was the weakest performer.
Brent crude, the international oil benchmark, fell 1.7 per cent to just below $48 a barrel. The reversal comes after a surge in oil prices in recent weeks to levels not seen since March.
Some fund managers remain broadly positive on equities, in the belief that economies will reopen next year, with travel and industrial production recovering strongly.
“The rally has taken a bit of a pause, but it may be a pause rather than a peak,” said Trevor Greetham, investment strategist at Royal London.
Pfizer and German partner BioNTech said earlier this month that their experimental Covid-19 vaccine appeared to be 95 per cent effective, with US biotech Moderna reporting similar trial results for its jab, which had “really been a big game changer”, Mr Greetham noted.
He said global stock markets could be knocked by another surge in coronavirus cases after the US Thanksgiving holiday, which began on Thursday, adding that “in that case we will be buying the dip”.
With US markets closed for Thanksgiving, the dollar index traded flat although the spot gold price ticked 0.5 per cent higher to $1,814 a troy ounce.
Sterling slipped 0.1 per cent against the dollar, to purchase $1.337, and lost the same proportion against the euro to buy €1.211, as post-Brexit trade talks between the UK and the EU remained deadlocked.
“With just 5 weeks today until the transition period comes to an end, there’s still no sign of progress on the key issues in the trade negotiations,” commented Jim Reid, strategist at Deutsche Bank. “Tensions are mounting.”