‘Reopening trade’ in global markets cools as Covid worries mount

European stocks whose fortunes are pegged to the reopening of the world economy fell on Wednesday, while tech stocks rallied, as concerns over coronavirus intensified.

The region-wide Stoxx 600 index slipped 0.1 per cent in late-morning trading. The dip came amid a rotation out of financial, consumer and energy stocks — in vogue among investors banking on vaccine rollouts rapidly returning life to normal — into tech shares, which benefit from lockdowns and homeworking.

The Stoxx’s technology subsector rose by 0.6 per cent, while its financial, consumer and energy counterparts were all down. A similar narrative emerged in London, where the FTSE 100 lost 0.1 per cent, led lower by banks. Germany’s industry-heavy Xetra Dax dropped 0.4 per cent.

Futures markets signalled that Wall Street’s main indices would open higher later in the day, led by tech shares. Contracts that bet on the performance of the top 100 stocks on the technology-focused Nasdaq Composite rose 0.8 per cent. Those on the broader S&P 500 index, which has a far larger weighting of technology companies than Europe’s Stoxx, gained 0.4 per cent.

The moves come amid mounting angst and growing restrictions over a new wave of the virus in Europe and a move by Brussels to tighten vaccine exports.

“What we lost sight of recently is that pandemic is still not over,” said Olivier Marciot, senior cross-asset investment manager at Unigestion. “Now all of a sudden everyone is realising the route to reopening is not that simple, and all these trades that were based on high expectations of reopening have been turning around.”

European Commission proposals set to be revealed later on Wednesday would widen the basis for stopping shipments of coronavirus vaccines to countries that import from the EU but refuse to export their own vaccine production. The move follows delayed vaccine rollouts across Europe.

The measures could in principle enable Brussels to stop shipments of BioNTech/Pfizer and Moderna vaccines made in the bloc being sent to Britain.

Even unexpectedly strong manufacturing data for Europe failed to lighten the mood. IHS Markit’s purchasing managers’ index for March, a gauge of sentiment and order levels among factory bosses, soared to a record high of 62.4 in the first reading of the survey, up from 57.9 in February. The same index for the services sector rose to a seven-month high of 48.8, below the 50 watermark that separates expansion from contraction.

“This is probably a temporary effect as we know that many European countries are now intensifying their lockdowns,” said Peter Westaway, chief economist at Vanguard Europe, referring to the latest data releases. “We are still looking at a pretty poor overall picture for the months to come.”

Investors sheltered from the economic uncertainty by moving into government bonds, which have sold off rapidly in recent months as concerns grew that a rapid rebound in US economic growth would spur a strong bout of inflation.

The yield on the 10-year US Treasury, which moves inversely to its price, declined by 0.01 percentage points to just under 1.63 per cent. The equivalent German Bund yield fell by the same amount to minus 0.35 per cent.

The dollar, another haven asset, rose 0.2 per cent against a basket of currencies. The euro fell 0.2 per cent against the dollar to $1.183. Sterling also weakened, losing 0.3 per cent.

After falling on Tuesday by about 6 per cent, oil rebounded on Wednesday. Brent crude, the international benchmark, gained 2.2 per cent to $62.15 a barrel, while West Texas Intermediate, the US marker, was up by a similar amount to $59.15 a barrel. The commodity suffered its biggest weekly fall since October last week on demand worries.

In Asia, China’s CSI 300 closed 1.6 per cent down, Hong Kong’s Hang Seng lost 2 per cent and Japan’s Topix fell 2.2 per cent. South Korea’s Kospi dipped 0.3 per cent.

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