Europe trades lower on Covid, Powell in focus

One year after the start of the first lockdown and risk-off trade is keeping European indices firmly in the red. Fears of new Covid waves on the old continent, tighter lockdown restrictions in Germany and fresh sanctions on China have left little for investors to cheer. Demand for riskier assets such as stocks has fallen while safe-haven inflows are boosting the US dollar.

The German Dax is among the weaker benchmark indices after Chancellor Angela Merkel extended lockdown conditions until 18 April. While German data shows the manufacturing sector remains a bright spot even under lockdown conditions, the service sector in the Eurozone’s largest economy is contracting. Tomorrow’s PMI readings will shed more light on the health of the sector. However, it’s fair to say the more prolonged the lockdown restrictions continue, the longer the recovery will take.

While firmly in the red, the FTSE is holding up better than its European peers, thanks in part to the slumping pound. Oil majors and airlines are among the steepest decliners as the likes of BP trace oil prices lower, while investors ditch airlines following the government’s latest travel restrictions. With no end in sight to the “illegal” holiday restriction, it’s difficult to be bullish on airlines.

Looking towards the US session, American indices are trending southwards amid concerns over US-China relations. US treasury yields are proving to be one less thing for investors to worry about as they continue to ease lower, with attention shifting firmly towards Federal Reserve Chair Jerome Powell and US Treasury Secretary Janet Yellen testifying before Congress. The pair kick off a two-day session where they are set to discuss the health of the US economy and the need for fiscal stimulus. Reassurance over a loose monetary policy and a sanguine stance towards the bond market could pull bond yields lower, offering support to stocks.

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