European stocks erase earlier gains on COVID-19 case concerns

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LONDON, Nov 22 (Reuters) – European stocks gave up their early gains and turned lower on Monday as traders weighed the likely impact of fresh European COVID-19 restrictions on economic prospects, while world stocks were set to extend a two-week losing streak.

German Chancellor Angela Merkel reportedly said Europe’s biggest economy needs tighter measures to control coronavirus infections. L8N2SD30W

According to Bloomberg, Merkel told officials from her CDU party that the situation is “highly dramatic” and warned that hospitals would soon be overwhelmed unless the fourth wave of the pandemic is broken. It cited a person familiar with her remarks.

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Europe’s STOXX 600 (.STOXX) equity benchmark was down 0.1%, having earlier risen 0.3% while the euro currency briefly ticked lower, last down 0.2% at $1.12775.

“The recent wave of new COVID cases in Europe is weighing on the markets and the currency is also struggling with interest rate expectations,” said John Marley, CEO of consultancy forexxtra.

Though Wall Street futures held comfortably in positive territory, with Tesla (TSLA.O) shares up nearly 3% in pre-market trading, major European indexes were pointing south. An MSCI gauge of European shares (.MSCIEF) was down 0.5%.

Austria powered down public life on Monday as its fourth national COVID-19 lockdown began, the first in a western European country. read more

High frequency data has already shown the European economy struggling to gain traction relative to its U.S. counterpart.

Though equity analysts have kept their bullish European stock market recommendations for now, investors are closely watching sectors such as travel, hotels and banks. The travel and leisure index was Monday’s top decliner (.SXTP) in trading.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIWD00000PUS) fell 0.1%. An Asian gauge (.MIAPJ0000PUS) was down by a similar margin.

The euro slipped 0.3% to $1.1260, close to a 16-month low hit on Friday. The common currency has been the prime mover in markets over recent sessions as investors bet that Europe’s economy will lag the U.S. recovery.

On the corporate front, shares in Telecom Italia (TLIT.MI) jumped 30% after KKR made a $12 billion approach to take the Italian phone group private. A sub-index of telecoms shares (.SXKP) gained by its biggest margin since March.

Safe-haven assets such as bonds, gold and the yen have also benefited from the recent cautious tone.

On Monday, the yield on benchmark 10-year U.S. Treasuries was steady at 1.5600%, with the yield curve at its flattest level since the pandemic began as markets eyed nervously the prospects of a faster unwinding of stimulus.

Fed Vice Chair Richard Clarida said last week that quickening the pace of tapering might be worth discussing at December’s meeting. Minutes of the Fed’s November meeting are due for release on Wednesday.

Safe-haven assets attracted demand. Gold found support at $1,845 an ounce, while the yen hovered at 114.09 per dollar.

Bitcoin was under pressure after posting its worst week in two months last week and fell 3% to $57,000.

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Reporting by Saikat Chatterjee; Editing by Catherine Evans

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