European stocks dropped the most in three weeks as investors fretted over the risk of lockdowns and travel restrictions as the omicron coronavirus variant continued spreading.
The Stoxx Europe 600 fell as much as 2.6% before trading 1.7% lower by 10:06 a.m. in London. Travel and leisure stocks were especially under pressure, while miners and energy underperformed with commodities.
Lockdown risks are rising as U.K. Health Secretary Sajid Javid refused to rule out stronger measures before Christmas after the nation’s top health advisers urged more restrictions to contain sharply rising coronavirus infections. The Netherlands said Saturday it’s moving to a full lockdown until at least Jan. 14. Europe’s biggest countries are also weighing further curbs.
European shares have declined from record highs in recent weeks amid investor concerns about Covid-19 hurting the economic recovery and as central banks turn more hawkish.
“We remain optimistic for 2022, but the winter months should be difficult due to rising inflation, persistent energy shortages and the need for further lockdowns across Europe and the U.K.,” said Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital. “All of that is likely to curb growth expectations in coming months, but we remain buyers into weakness since we expect growth to remain strong overall in 2022 and inflation to drop.”
Germany designated the U.K. as a virus variant area from Monday, the highest risk category, requiring incoming travelers to undergo a mandatory 14-day quarantine, regardless of their vaccination status. France is considering health passes at work.
“The rampant nature of Omicron and its potential impact in sharply slowing global growth is continuing to unnerve investors,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. “The Netherlands has already imposed a fresh lockdown, and there is likely to be a domino effect of restrictions being imposed across Europe in the days and weeks to come.”
Stocks slightly pared declines after Moderna Inc. said a third dose of its Covid-19 vaccine increased antibody levels against the omicron variant.
The Euro Stoxx 50 Volatility Index VSTOXX jumped to the highest in two weeks today as market swings increased.
The omicron variant is likely to have a bigger effect on European stocks than on their U.S. counterparts due to the region’s services-led economies and extended lockdowns, said State Street Global Advisors’ Altaf Kassam.
“We do think that, in the medium to long term, it makes sense still to move risky assets from the U.S. to Europe, as Europe starts to get a bit more of an upswing,” said Kassam, the firm’s EMEA head of investment strategy and research, in a Bloomberg TV interview. “The services-driven European economy does need the uncertainty over the omicron variant to be lifted for it to really take off.”
Novo Nordisk A/S plunged after the company said late Friday that manufacturing snags at a contract supplier will make it unable to meet demand in the U.S. for its blockbuster obesity drug Wegovy. Meanwhile, Deutsche Telekom AG dropped on reports the company is preparing to sell either a minority or majority stake in its tower business.
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