European stock wavered on Friday, as concerns over recent COVID-19 figures in Europe mingled with optimism about a possible vaccine.
Major stock markets across the continent and in the UK opened lower on Friday before reversing losses in early trade. However, the session was defined by a general lack of momentum in either direction.
Joshua Mahony, a senior market analyst at IG, said investors were caught in the “ongoing battle between optimism and the current reality”.
Positive news about Pfizer (PFE) and BioNTech’s (BNTX) possible COVID-19 vaccine at the start of the week sparked a rally for stocks on Monday but concerns about the second wave of the virus were revived on Friday.
“In France, the number of people requiring hospitalisation rose to a record level yesterday, while here in the UK the number of people infected in a single day surged by nearly 50% to over 33,000,” said Michael Hewson, chief market analyst at CMC Markets.
“With both France and the UK already in the midst of a temporary lockdown, there is a concern that unless the case rate slows, any relaxation of restrictions could take longer to unfold, and increase the longer term potential for economic damage along with that.”
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COVID-19 cases in the US also reached new record highs on Thursday. However, North American investors seemed less troubled by this development.
Stocks fell in Asia overnight. Japan’s Nikkei (^N225) fell 0.5%, the Hong Kong Hang Seng (^HSI) dropped 0.3%, and the Shanghai Composite (000001.SS) declined by 0.8%. In Australia, the ASX 200 (^AXJO) fell 0.2%. South Korea’s KOSPI (^KS11) was a notable outlier, rising 0.7%.
Late on Thursday, the heads of the Federal Reserve, ECB, and Bank of England all warned that a vaccine would not bring an immediate end to society’s problems during a virtual central banking conference.
“They all shared similar concerns that a potential COVID-19 vaccine would not end the economic challenges of the pandemic,” said Jim Reid, a senior strategist at Deutsche Bank (DB).
Equities surged at the start of the week after Pfizer (PFE) and BioNTech (BNTX) said their vaccine candidate was inducing an immune response in 90% of cases. The news sparked frenzied trading activity around the world as Investors dumped tech stocks and bond-like defensive plays in favour of value companies like banks and energy companies.
“The speed and size of the rotation, as well as the low quality nature of the stocks that rebounded the most, point to short covering, rather than fresh capital being deployed to new long positions,” Barclays’ European Equity Team, led by Emmanuel Cau, wrote in a note sent to clients on Friday.
Barclays said the investor rotation towards value stocks “has legs, as value remains under owned and still lags the higher yields, but will be gradual.”
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