European stocks recover as new COVID-19 strain prompts economic paralysis concerns

Kumutha Ramanathan
·Contributor
·3-min read
Passengers wearing protective face masks wait to exit upon arrival at Chhatrapati Shivaji Maharaj International Airport after India cancelled all flights from the UK over fears of a new strain of the coronavirus disease (COVID-19), in Mumbai, India, December 22, 2020. REUTERS/Francis Mascarenhas
Passengers wearing protective face masks wait to exit an airport after India cancelled all flights from the UK over fears of the new COVID-19 strain. (Credit: Francis Mascarenhas/Reuters)

The FTSE (^FTSE) joined its European peers in recovering on Tuesday as fears of a highly infectious new strain of COVID-19 — that has a 70% greater transmission rate than the original one — caused a wave of travel bans and prompted fears of a delay to the global economic recovery.

The FTSE 100 (^FTSE) was lower at the market open but closed up 0.6% in London. Germany’s DAX (^GDAXI) stayed in positive territory, having gained 1.4% in Frankfurt and the CAC 40 (^FCHI) was also higher 1.5% in Paris. The Europe-wide Stoxx 600 index (^STOXX) was up 1.2%.

US markets were lower in mid-day trading, with the S&P (^GSPC) lower 0.4% and Dow Jones (^DJI) down 0.5%. The Nasdaq (^IXIC) fell 0.2%.

“Investors' chief dilemma is if the new strain of coronavirus is more perilous than the current one,” said Naeem Aslam, chief market analysts at AvaTrade.

“Of course, the WHO doesn't think that the new variant is more dangerous. But from a consumer and investor sentiment perspective, the new variant of coronavirus Is likely to cause more damage to the global economy.

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“This also means that the government officials and monetary policy members need to reload their guns as we could be in for a rough year. After all, it was the fiscal and monetary policies that saved the global economy from crippling.”

The news of a new COVID-19 strain originating in the UK has prompted countries across the world to shut their borders to Britain on Monday, leading to travel chaos and raising the prospect of food shortages days as the nation prepares to leave the European Union.

Sterling has also taken a hit on Tuesday, falling sharply after the EU reportedly rejected the UK’s latest proposals to break the Brexit deadlock. Micheal Barnier, the EU’s chief Brexit negotiator, said trade talks were in a “crucial moment” on Tuesday afternoon.

The UK’s economy is taking a further beating, with public borrowing having hit its highest November level since records began in the early 1990s, as tax receipts dropped and furlough costs racked up. The latest data from the Office for National Statistics (ONS) shows the UK government borrowed £31.6bn ($41.69bn) in November, with borrowing levels higher than the previous month and than analysts’ expectations.

Markets were somewhat buoyed by news that the US House and Senate has passed a last-minute $900bn (£669bn) coronavirus stimulus package on Monday night after weeks of negotiations between the Democrats and Republicans.

Asian markets also slumped amid the new virus fears. Japan’s Nikkei (^N225) fell 1% at market close, the Hong Kong Hang Seng (^HSI) was down 0.7%, and the Shanghai Composite (000001.SS) fell 1.9%. South Korea’s KOSPI (^KS11) was lower 1.6%.

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