European stocks fall as September slide gains momentum

Global stocks dropped on Friday on mounting concerns about whether a second coronavirus wave will knock the economic recovery off course.

Wall Street opened lower on Friday, with the benchmark S&P 500 and the tech-heavy Nasdaq Composite each down by about 0.1 per cent. The fall takes the blue-chip S&P 500 within 1 per cent of erasing this year’s gains.

The Stoxx Europe 600 fell about 0.6 per cent by afternoon trading, leaving the region-wide benchmark down more than 3 per cent in September. Equities on the continent are now heading for the worst month since the March sell-off, as bourses in Frankfurt, Paris and Milan all fell more than 1 per cent on Friday.

The FTSE 100 was more resilient, dipping 0.1 per cent, helped by a weakening pound that bolsters exporters listed on the London index.

Economically sensitive sectors including automobile and parts makers, travel and leisure companies and banks were among the biggest fallers in Europe. Industries sought for their relatively stable revenue, such as utilities, dodged the selling.

Column chart of Stoxx Europe 600 index showing European stocks heading for worst month since March sell-off

The US dollar, often viewed as a haven asset, rallied 0.3 per cent to near a month high against a basket of its trading peers.

Nerves and a broad equity sell-off this week were sparked by rising infections, renewed lockdown measures, a more cautionary tone from policymakers and disappointing eurozone data that pointed to a slowing economic recovery.

“People had just got comfortable running a bit more risk in portfolios,” said Jason Borbora-Sheen, portfolio manager at Ninety One. “This will be a painful episode.”

Fahad Kamal, chief investment officer at Kleinwort Hambros, Société Générale’s private banking and wealth management division, said September had been “a microcosm of the year”.

The month began with rising equity prices, with investors optimistic that the economic recovery was in full swing, followed by a broad sell-off as traders grew concerned that stocks were overvalued and the recovery was waning.

“I don’t think that this has been some fundamental readjustment towards a downturn or another bear market” but instead marks a healthy correction, Mr Kamal added.

On Thursday, the UK government announced plans to replace the furlough scheme with a Germany-style wage subsidy plan, in which the Treasury would subsidise people who worked at least a third of their usual hours. Employees unable to work would not be eligible, however. “I cannot save every business. I cannot save every job,” said chancellor Rishi Sunak.

Sven Jari Stehn, chief European economist at Goldman Sachs, said he was sceptical the scheme would be enough to encourage employers to retain a large proportion of employees on furlough. He expected 2.2m workers to move off the furlough scheme into unemployment.

European government bonds edged up in price as investors shifted away from equities. The 10-year Bund yield recently fell 0.014 percentage points to minus 0.52 per cent, with its French counterpart down a similar margin to minus 0.25 per cent.

Encouraged by the prospect of renewed stimulus measures in the US, stocks in the Asia-Pacific region closed broadly higher on Friday. Tokyo’s Topix was up 0.5 per cent and China’s CSI 300 rose 0.2 per cent. But Hong Kong’s Hang Seng slipped 0.3 per cent, weighed down by the healthcare and cyclicals sectors.


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