European Shares Surge as Vaccine Optimism Outweighs New Restrictions

On Tuesday, European shares rose, as investors were able to shake off the nervous early trades due to the optimism of the coronavirus vaccine rollout, even though an increase in COVID-19 cases led to increased restrictions throughout the continent. The latest Western nation after the United Kingdom to start a vaccination drive is none other than the United States and news helped in boosting market sentiment, as it gives a 0.2% boost to the pan-European STOXX 600 index. The London FTSE had initially slipped by 0.5%, but it also went back up by 0.3%. The highest tier of coronavirus restrictions were imposed in London, as the increased rates of infection are being caused by a new variant of COVID-19.

Meanwhile, it was expected that a partial lockdown would be imposed in Italy from December 24th till January 2nd, and Germany was prepared for a new lockdown that goes into effect on Wednesday. However, as the European Union is expected to approve a COVID-19 vaccine by January, 2021, the vaccine optimism has become the focus of the investors, as per market analysts. They said that traders had chosen to look beyond the effects of the immediate precautions that have to be taken due to a stricter lockdown in the short-term. 

In different sectors, auto manufacturers and part makers were leading the gains, as there was a 5% increase in Volkswagen. This was after the company’s supervisory board declared that their full support was behind Chief Executive Herbert Dries, as he is heading the new team, thereby averting a potential leadership crisis. Miners also surged as there was an increase in iron ore and copper prices due to the upbeat data provided by China regarding factory output. There was a 0.5% increase in France’s CAC 40 and Germany’s DAX, both of which comprise of big mining and auto names. 

However, analysts warned that the new pandemic-led restrictions could have a serious impact on the markets. They said that these new curbs could result in losses of as much as 3.5 billion euros for Germany. They also said that the next round of catch-up spending doesn’t need to be as strong as the first one. Apart from that, investors will also be keeping their eye out on the outcome of the two-day meeting of the US Federal Reserve, which begins on Tuesday, while Washington is struggling to pass a fiscal aid package.

There was some lag seen in the retail sector in Europe, which came under pressure after a 2.7% drop in in the second-biggest fashion retailer in the world i.e. H&M. The retailer disclosed that there was a 10% drop in its local-currency sales for the fourth quarter, and the pandemic had resulted in a big slowdown in the final month. However, a 6.4% increase in JD Sports helped temper the losses in the sector, after the sportswear retailer announced that it had spent $325 million to purchase US retailer Shoe Palace. This kind of mixed response is expected in the near future as well.