By Geoffrey Smith
Investing.com -- Europe’s stock markets are struggling again after two important indicators bore out fears that a full winter of Covid-19 restrictions is going to take another heavy toll on the economy.
The monthly ZEW survey of economic expectations in Germany nose-dived in October, falling to its lowest level since May, against a backdrop of rising infections, and broader restrictions on gatherings and activity in Europe’s largest economy.
That news came only three hours after the U.K. recorded its steepest rise in layoffs since 2009, as firms cut swathes of staff ahead of the scheduled end of the government’s wage subsidy scheme.
Germany’s DAX fell 0.3% by 5:30 AM ET (0930 GMT), while the U.K. FTSE 100 fell 0.2%. The benchmark Stoxx 600 fell 0.1% to 372.54, extending a four-month run of bafflingly low volatility. Since the start of June, when the post-panic rebound topped out, the Stoxx 600 has traded in a range barely 3.5% either side of 364 points. It hasn’t posted a new high since early July.
“The great euphoria witnessed in August and September seems to have evaporated,” ZEW head Achim Wambach said in a statement. “The recent sharp rise in the number of COVID-19 cases has increased uncertainty about future economic development, as has the prospect of the U.K. leaving the EU without a trade deal.
Wambach added that “the current situation in the run-up to the presidential election in the United States further fuels uncertainty.”
At least two of those three factors are more likely than not to be temporary: the most rational outcome of the brinkmanship in the Brexit negotiations is still a messy compromise that avoids dramatic ruptures and cliff-edge effects. In the U.S., meanwhile, the sustained lead of Democratic Party nominee Joe Biden in national opinion polls and – just as importantly – in certain key swing states – has eased fears about a contested election result in November.
The one factor that isn’t going away is the virus: data from the European Centre for Disease Control show new infections running wild in Spain, France, Belgium, the Czech Republic and much of England, where London Mayor Sadiq Khan accepts that some form of fresh lockdown measures are “inevitable.” Hospital admissions, arguably a more important indicator, slow a slightly better trend but are still clearly rising, in central Europe in particular.
The U.K. government on Monday unveiled a new system of categorizing high-risk areas in an effort to bring some structure and clarity to a policy often criticized as chaotic and ad-hoc. However, its chief scientific advisor Chris Whitty said that even the strictest measures under the new scale would likely not be enough to bring the infection curve down again.
The British labor market weakened drastically in the three months through August, with overall employment falling by 153,000, more than five times the consensus estimate. The unemployment rate rose to 4.5% from 4.1%, its highest in three years. The one bright spot in the report was vacancies, which rose by a record amount in the three months through August. As with the comparable U.S. figures, it seems that the pandemic has created plenty of opportunities along with the disruption it has brought.