Europe lower on Covid concerns and oil stocks

European stocks are heading lower on Friday, paring some of their weekly gains. Rising concerns over resurging covid in Europe is hitting sentiment, with investors taking risk off the table ahead of the weekend.

France imposed more regional curbs in an attempt to stem the spread of the virus, which has only been made worse by the suspension of the AstraZeneca vaccine. The French CAC is reflecting the building risk to the economy, falling harder than most of its European peers: -0.7% at the time of writing.

With the European Medical Agency declaring the AstraZeneca inoculation safe yesterday, France, Germany and Italy will resume using the jab again today. Other countries will pick up the baton early next week. Even so, investors will want to see Europe’s vaccine numbers improve for the market to really find a floor.

Following oil’s seismic decline in the previous session, oil stocks are acting as a particular drag on European indices. However, a more upbeat start is expected in the US, which could help lift Europe higher into the afternoon.

Looking ahead to the US open, yields appear to be very much in the driving seat. After yields surged to a 14-month high yesterday, dragging the tech-heavy Nasdaq sharply lower, today’s pause in the bond-market sell-off is seeing demand for tech stocks rebound.

With little on the US economic calendar to distract investors, sentiment and inflation expectations will be under the spotlight. As long as 10-year treasury yields can remain depressed around the 1.70% level, we could be looking at a more upbeat end to the week.

GBP shrugs off frighteningly high PSNB

The US dollar handed back earlier gains as bond bears paused for breath. Treasury yields slipped back from yesterday’s 14-month high as investors continued digesting the Fed’s pledge to stick with aggressive monetary stimulus, while also projecting the strongest US economic growth in four decades.

Icy tensions between the US and China during talks in Alaska hasn’t prompted a greenback flight to safety. The US dollar index trades -0.1% heading towards the US session.

The pound is putting in an encouraging performance, despite eye-watering public-sector borrowing figures. UK public finances deteriorated further in February as government borrowing hit a record high. Spending on Covid measures ramped up further while tax receipts fell, resulting in the government borrowing GBP19.1 billion, the highest February figure since records began.

While the number is horrifying, the pound was ready to don its rose-tinted glasses, celebrating the fact it wasn’t as bad as the GBP21 billion forecast. GBP/USD advanced to an intraday high of 1.3960, although it’s since eased lower. Meanwhile, the pound continues to strengthen versus the euro, with EUR/GBP testing resistance at 0.8850.

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