European Shares Brace for Worst Sell-Off in a Year due to Virus Scare

On Friday, European shares were ready for their worst session they have seen in more than a year, as reports of a newly discovered coronavirus variant that could possibly be vaccine-resistant surfaced. This stoked fears amongst investors of the global economy taking another hit and drove them out of riskier assets towards safe-haven ones. There was a 2.5% fall in the benchmark STOXX 600 index and it had declined as much as 3.6% in early trading. In contrast, the volatility gauge for the stock market had reached its highest level in almost 10 months. 

There is not much information available about the virus in Hong Kong, Botswana and South Africa, but scientists have disclosed that it seems to have some unusual combinations of mutations and it is possible that it could evade immune responses, meaning that it is likely to be more transmissible. There was a 3.3% fall in France’s CAC 40, which pushed regional markets lower. There was a 10% fall in shopping center operator Unibail, planemaker Airbus and Safran. There was a 2.2% drop in the UK’s FTSE 100, whereas Germany’s DAX slid by 2.7% and there was a 3.4% fall in Spain’s IBEX. 

The week has been very stressful for the European stock markets that are cyclical-heavy because of a resurgence in coronavirus cases that have resulted in newer restrictions in numerous countries. Market analysts said that even though COVID-19 still appears to have an impact on market sentiment, it is certainly not even close to what it used to be because the economic and political agendas have more breadth now. With that said, the winter is undoubtedly going to be a difficult one with restrictions will make a return and some stock sectors that were the most vulnerable are going to wobble once more.

These include leisure, travel, entertainment and retail. There was a 3.9% fall in leisure and travel stocks, after they had fallen as much as 7% upon the announcement of a temporary ban by Britain on flights on Friday from South Africa as well as few other neighboring countries. Similar moves will be made by the European Union. There was a 9% to 10% fall in shares of travel company TUI, cruise operator Carnival and British Airways owner IAG as well as EasyJet. There was also a 4.3% drop in oil and gas producers, whereas miners slid by 3.5%, as metal and oil prices lost ground because reports of the new coronavirus variant fueled worries of an economic slowdown.

The banking index also plummeted by 4.4%, while tracking a decline in bond yields. But, there was a 3% surge in some stay-at-home stocks, such as Just Eat and Delivery Hero. The eurozone money markets were driven by the virus scare to scale back bets of an interest rate increase in the next year by the European Central Bank. The odds of a rate hike in December 2022 were 100% earlier this week, but have now halved. There was also a 1.5% drop in New York’s S&P 500 futures, likely because of thinning trade in the US. 

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