European stocks recover after burst of nerves

European equities staged a partial recovery on Wednesday from sharp falls in the previous session, as optimism about corporate earnings outweighed concerns about the spread of new coronavirus variants.

The Stoxx 600 index ticked 0.4 per cent higher after semiconductor equipment maker ASML lifted its sales forecast for the year and Dutch brewer Heineken reported better than expected quarterly sales.

This followed a 1.9 per cent drop on Tuesday, when the region’s fragile recovery was called further into question by a European Central Bank survey that indicated banks were tightening credit conditions.

In London, the FTSE 100 added 0.1 per cent after slipping 2 per cent on Tuesday.

Investors should remain cautious about European equity markets after the Stoxx hit a record last week, said Shaniel Ramjee, senior investment manager in the multi-asset team at Pictet. “Signals about the market being overbought have been flashing red.”

The region’s larger exporters were set to benefit from the strong economic recovery under way in the US and easy access to cheap international funding, Ramjee said.

“In other parts of the market there is too much optimism,” he warned, as Europe’s slow pace of Covid-19 vaccinations and new variants meant “the face-to-face service economy could lag, particularly if Europe misses a summer reopening”.

Other analysts stuck to a long-held view that Europe’s economic rebound would mirror that of the US. “We now expect the vaccine-led boost to asset prices we saw in the United States to broaden to Continental Europe,” Goldman Sachs analysts commented in a research note.

The Japanese cities of Osaka and Tokyo sought state of emergency decrees from the national government on Wednesday because of surging caseloads brought on by novel Covid-19 variants.

India is being hit by a devastating second wave, now reporting 260,000 coronavirus infections and 1,700 deaths a day, while the UK is monitoring the transmissibility of a variant first discovered in the south Asian nation.

The pandemic situation weighed on Asian stocks and oil prices on Wednesday. Brent crude fell by 0.9 per cent to $65.97 a barrel.

Japan’s benchmark Topix index dropped 2 per cent, South Korea’s Kospi dipped 1.5 per cent and Hong Kong’s Hang Seng fell 1.7 per cent.

Futures markets tipped the S&P 500 to trade flat at the New York opening bell and a 0.2 per cent dip for the top 100 stocks on the technology-focused Nasdaq Composite.

Overnight on Wall Street, stocks notched their first back-to-back slide since March, with the blue-chip S&P 500 index closing 0.7 per cent lower, dragged down by stocks whose fortunes are linked to economies reopening.

Shares in Netflix also fell sharply in after-hours trading after the streaming service warned growth in numbers of new subscribers would decline in the second quarter of the year as US lockdowns lifted.

US government bonds were steady, with the yield on the benchmark 10-year Treasury 0.01 percentage point higher at 1.575 per cent.

The dollar, as measured against a basket of currencies, rose 0.1 per cent to hover at around its lowest point since early March. The euro fell 0.3 per cent against the dollar to $1.20 ahead of the ECB’s latest monthly meeting on Thursday. Sterling traded flat at $1.393.