European markets slump as governments struggle to contain COVID-19

Kumutha Ramanathan
·Contributor
·3-min read

Watch: Markets lower as renewed restriction go into effect

Unease continues to spread across Asian and European markets on Thursday as COVID-19 containment efforts struggle to reap results. A lack of a US stimulus deal adds further pressure. Global stock markets suffered from a heavy sell-off on Wednesday.

European markets opened higher but then closed largely lower. The DAX (^GDAXI) was up by 0.3% in Frankfurt and the CAC 40 (^FCHI) fell by 0.1% in Paris. In Milan, the FTSE MIB (FTSEMIB.MI) tilted lower by 0.4%. The IBEX 35 (^IBEX) went down by 1.1% in Madrid. In London, the FTSE (^FTSE) also dropped by 0.2%.

Continental governments are ramping up their COVID-19 measures as cases continue to rise. Germany has introduced a four-week partial lockdown. Restaurants, bars and nightclubs will be closed as well as leisure facilities, including gyms, event venues, cinemas and amusement parks.

France has also reverted to new nationwide restrictions, which will last until 1 December. This includes bars and restaurants being closed, domestic travel and public gatherings being banned.

People wearing face masks walk by the River Thames in London, Britain, on Oct. 28, 2020
A new Imperial College London/Ipsos Mori study shows the UK government's efforts to curtail COVID-19 haven't been as effective as had been intended. Photo: Han Yan/Xinhua via Getty

“The fear is that this particular lockdown is going to hurt the economy even more,” said Naeem Aslam, chief market analyst at AvaTrade. “The reason is that the European economy is already in a fragile state, and another blow is going to draw more blood.”

The UK could also be heading in this direction. A new study from Imperial College London and Ipsos Mori reveals that the government’s efforts to curtail the coronavirus in England have not succeeded in reducing the spread of the disease, with infection rates doubling every nine days and an estimated 960,000 people carrying the virus in England on any one day.

The European Central Bank (ECB) left its monetary policy unchanged on Thursday, but warned the outlook for the European economy was worsening and laid the groundwork for fresh stimulus in December.

WATCH: New lockdown in France and Germany as cases surge

Markets have been forced to accept that a second stimulus package isn’t coming ahead of the US election as the Senate has gone on recess until 14 November.

“Investors do know that they will see another stimulus package as the US economy is in desperate need of another stimulus package” said Aslam.

“The delay in the stimulus package could mean that we may actually see a bigger stimulus package. But this only depends on the smooth transition of power. For instance, if Donald Trump wins the US election, there is no doubt that we will see a massive stimulus package very soon; however if Donald Trump loses the US election, he is likely to make the power transition process as difficult as possible.”

READ MORE: ECB leaves policy unchanged as Europe returns to lockdown

Further, markets will be watching for major tech earnings today from Apple (AAPL), Google (GOOG), Amazon (AMZN), and Facebook (FB).

Wall Street markets were higher in mid-day trading. The S&P 500 (^GSPC) was up by 0.9% and Dow Jones index (^DJI) was lower by 0.3% and the Nasdaq (^IXIC) was 1.4% higher.

Stock markets were mixed at the close of the Asian trading session. Japan’s Nikkei (^N225) was down by 0.4% and the Hong Kong Hang Seng (^HSI) lost by 0.5%. With respect to mainland Chinese markets, the Shanghai Composite (000001.SS) was higher by 0.1% and the Shenzhen Component (399001.SZ) rallied by 1%.

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