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European stocks take a breather after vaccine rally

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3-min read

WATCH: European stocks rise as Barclays says buy the dip

European stock markets registered small gains on Friday, as investors looked past bullish calls from investment banks and instead focused on consolidating recent gains in the face of the ongoing COVID-19 second wave.

Stock markets were mixed at the open on Friday, with most markets near flat. Indices gained ground in early trade and were in the green by the close.

The DAX (^GDAXI) ended up 0.4% in Frankfurt and the CAC 40 (^FCHI) gained 0.3% in Paris.

“Tentative European gains... appear to maintain the ongoing consolidation phase, as markets tread water in the wake of the vaccine boost seen over the past two Mondays,” said Joshua Mahony, a senior market analyst at IG.

Barclays issued a bullish call on equities on Friday. Photo: Omar Marques/SOPA Images/LightRocket via Getty
Barclays issued a bullish call on equities on Friday. Photo: Omar Marques/SOPA Images/LightRocket via Getty

The FTSE 100 (^FTSE) closed up 0.3% in London. The index had been up as much as 0.8% earlier in the session after better-than-expected UK retail sales data. Separately, Barclays Economics upgraded its forecast for UK GDP growth next year by 1.6 percentage points. Economists at the bank now expect the UK economy to grow by 5.4% next year.

Traders shrugged off news that UK government debt continues to soar, reaching almost £2.1tn ($2.8tn).

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The muted performance of Europe indices came despite bullish calls from several investment banks.

Analysts on Barclays European equity strategy team advised clients to buy stocks on the back of a recent dip in prices, saying “the unwind of the 2-year long flight to safety may just be starting.”

Separately, UBS told its wealthiest clients to put more money into stocks. In a note sent on Friday, UBS Wealth Management said interest rates were likely to remain at record low levels next year given the high levels of indebtedness around the world. As a result, investors should seek returns outside of cash.

“We believe the potential for continued financial repression underscores the importance of owning ‘real’ assets such as equities,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

“We recommend investors seek out long-term secular growth, and consider boosting returns through exposure to private markets.”

READ MORE: UK monthly borrowing at sixth-highest level since records began in 1993

Morgan Stanley reiterated its bullish call on European equities. Analysts said in a note circulated on Friday that the MSCI Europe could gain 10% next year.

Despite these bullish calls, activity in Europe was muted. Barclays characterised the atmosphere as one of “Hope v Reality.”

“Vaccine breakthrough boosts hope of return to normality, but investors face a potentially foggy winter ahead if infections continue to soar,” Barclays’ equity strategy team, led by Emmanuel Cau, wrote.

US stocks were on the backfoot. The S&P 500 (^GSPC) was down 0.3% by the time trade ended in Europe, while the Dow Jones Industrial Average (^DJI) had dropped 0.5%. The Nasdaq (^IXIC) was flat.

Stock markets mostly rose in Asia overnight. The Hong Kong Hang Seng (^HSI) rose 0.2%, the Shanghai Composite (000001.SS) gained 0.4%, and South Korea’s KOSPI (^KS11) improved by 0.2%. Japan’s Nikkei (^N225) fell 0.4% and the ASX 200 (^AXJO) in Australia slipped 0.1%.

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