Pandemic worries weigh on European shares

The Euronext logo sits on the exterior of the Paris Stock Exchange in La Defense business district. The CAC 40 closed less than 0.1% up at 5,942.41 points yesterday.

Oil prices slumped yesterday, a day after spiking over the closure of the Suez canal, while nagging pandemic concerns and inflation fears held back stocks.Both Paris and Frankfurt stocks finished with small gains after having spent most of the day lower as dealers dwelled on worries about rising Covid-19 infections, renewed restrictions, and vaccine struggles across much of Europe. London fell as shares in energy companies were hit by the drop in oil prices. The FTSE 100 closed 0.6% down at 6,674.83 points, the DAX 30 closed less than 0.1% at 14,621.36 points and the CAC 40 closed less than 0.1% up at 5,942.41 points.The EURO STOXX 50, meanwhile, closed 0.2% down at 3,826.22 points.“A decision to limit (vaccine) flow could severely hamper the UK reopening timeline,” said Joshua Mahony, senior market analyst at IG.“With the UK clearly well ahead of EU nations in the vaccination drive, there is a real risk that politicians such as Angela Merkel push for action as their popularity wanes.”H&M dropped 1.6% after at least one Chinese online retailer appeared to drop its products following social media attacks on the Swedish company for saying it was “deeply concerned” about reports of forced labour in Xinjiang in China.Shares of German sportswear firm Adidas, which also came under fire in China, was down 6%. Cineworld slumped 7% after it reported a $3bn loss for 2020 and said it will ask shareholders to approve a raise in its debt ceiling.Gains in defensive sectors such as utilities, telecoms and food & beverage, which tend to decouple from the economic cycle, offered some support to the market.Wall Street was steady in midday trade, after having initially moved lower despite US new unemployment claims last week coming in lower than expected, dropping below 700,000 for the first time since the pandemic.The drop in US first time jobless claims by nearly 100,000 over the past week, along with a fall in continuing claims by 264,000, fit “the bill of an improving economy that requires increased hiring activity and reduced layoff activity,” said Briefing.com analyst Patrick O’Hare.But the prospect of a strong economic rebound has been stoking fear that prices will soar, forcing central banks to reel in ultra-low monetary policies that have supported the rally in global equities.That has led to volatile trading as US stocks have pushed to record highs.CMC Markets UK analyst Michael Hewson said comments by US Federal Reserve chairman Jerome Powell yesterday that the combination of monetary and fiscal stimulus would help speed economic recovery had rekindled fears among investors.“Reading between the lines, markets appear to have taken that to mean the Fed might feel compelled to pare back some of its own extraordinary measures sooner than expected, thus prompting some further profit taking from recent peaks,” said Hewson.Crude prices had jumped by almost 6% on Wednesday in response to a giant container ship getting stuck in the Suez Canal, blocking one of the world’s busiest shipping routes.But oil prices tumbled yesterday, completely wiping out those gains at one point.“Oil prices corrected excess gains that accumulated from the Suez Canal blockade as the disruption’s effect is likely not one that will last too long,” said Bjornar Tonhaugen at energy consultancy Rystad.Egypt closed the canal yesterday and there were warnings it could take weeks to free the container ship.Although the canal is responsible for the transit of 10% of global oil production, following the initial shock traders have returned to larger concerns about the impact of pandemic lockdowns on the economy.“Crude prices are lower as the short-term demand outlook continues to get downgraded as many European countries seem nowhere near to easing restrictions,” said OANDA analyst Edward Moya.Oil prices had tumbled by similar amounts on Tuesday on such worries about energy demand given renewed Covid-19 lockdowns.Only earlier this month oil prices struck a 14-month high – returning to pre-pandemic levels – on reopening optimism.