European stocks weighed down by quickening rise in Covid-19 cases

European stocks started the week on the back foot as an acceleration in new coronavirus infections weighed on investor sentiment.

Both the continent-wide Euro Stoxx 600 and London’s FTSE 100 fell 0.9 per cent in early morning trading on Monday. Frankfurt’s Xetra Dax was 1.2 per cent lower, after an outbreak at an abattoir in Germany pushed its reproduction number up to 2.88 on Sunday. A number above 1 means the outbreak is expanding.

Investor sentiment in recent sessions has been damped by a sharp rise in new Covid-19 cases in the Americas, Europe and Asia, raising fears of a reversal in the easing of lockdowns in these economies.

The US reported 27,465 new cases as of the end of Sunday with a recent jump in infections in the southern and western parts of the country showing little sign of slowing down.

On Friday, the S&P 500 erased early gains to close down 0.6 per cent after Apple said it would temporarily close stores in US states including Arizona and Florida due to rising virus cases. The US benchmark stock index was expected to edge up when trading begins later on Monday, futures markets suggested.

Sprawling stimulus measures from central banks helped stocks continue their strong rally last week, but the move by Apple and the rise in new cases over the weekend has left investors firmly focused on the risk measures will need to be re-enacted to slow the spread of the virus.

In Asia-Pacific trading on Monday, Hong Kong’s Hang Seng was down 0.8 per cent and Seoul’s Kospi declined 0.4 per cent. Stock benchmarks in Tokyo and Sydney were flat while China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks added 0.4 per cent.

Chinese officials have also been attempting to control an outbreak in Beijing, where there were nine new cases reported as of the end of Sunday, down from 22 a day earlier. Meanwhile, some coronavirus restrictions have been reintroduced in the Australian state of Victoria following an uptick in cases.

However, strategists at Morgan Stanley said on Monday that China’s decision to lock down parts of the capital to contain the latest outbreak “may prove to be a better response for the purposes of economic growth over the medium term”.

“Quick, decisive action to contain hotspots is likely to feed into greater consumer confidence over time,” they added. “It should allow businesses to remain open for longer, for a given period of time, than the alternative.”

The US dollar dropped 0.2 per cent against a basket of currencies, stepping back from its recovery in the past two weeks.

Ulrich Leuchtmann, an analyst at Commerzbank, said that some analysts were betting “regardless of what happens the dollar will appreciate” since it would be supported by a surge in new Covid-19 cases and a quick US economic recovery.

Oil prices pulled back after a solid week in which Brent crude, the international benchmark, settled above $42 a barrel. On Monday Brent was down 0.3 per cent at $42.06 a barrel while US marker West Texas Intermediate fell 0.5 per cent to $39.53.