Buy the Rumor, Sell the Fact as Virus Chills Stimulus Cheer By

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By Geoffrey Smith — Europe’s stock markets are ending the week in downbeat mood, the reality of Joe Biden’s stimulus plans not enough to offset concerns about the new advance of the Covid-19 virus at the start of the year. 

By mid-morning in London, the benchmark index was down 0.4% at 410.38, while the German was down 0.4% and the U.K. and French were both down 0.6%.  

In contrast to U.S. indices, the Stoxx 600 is still below its pre-pandemic high, with only the Stoxx Technology subindex posting all-time highs this year. It was among the strongest performers again on Friday, after SAP posted better-than-expected preliminary results for the fourth quarter overnight. Aveva, a smaller U.K. software provider, also chalked up an impressive 26% gain in currency-adjusted revenue. Aveva (LON:) stock rose 5.8% while SAP  (DE:) stock eked out a 0.8% gain.

The President-elect’s $1.9 trillion plan to support the U.S. economy had been the chief supporting factor for risk assets for over a week, and there was little in it at first glance that had not already been fully discounted.

“Realistically, it will be a stimulus that hits the second quarter, rather than the first, as Congress is not going to pass this at once, and almost certainly will not pass the proposals as they stand,” said Paul Donovan, chief economist with UBS Global Wealth Management in a morning podcast.

Donovan argued that the support for state and local governments and the minimum wage increase in the package are both likely to arouse significant opposition from Republican Senators. The 50-50 split in the upper chamber leaves many elements of the package exposed to the risk of filibusters unless bipartisan support can be secured – something that may be less likely given the deep divide between the two parties over the recent actions of outgoing President Donald Trump.

However, none of this is particularly new. What is new is the increasing number of those starting to express doubt in the narrative that the rollout of vaccines will essentially end the pandemic by the middle of the year. Fresh mutations of the virus, slow distribution of vaccines and scattered evidence of problems regarding their effectiveness are all adding to concerns.

In Germany, deaths from Covid-19 are at record highs. Across much of Europe, notably the U.K., public healthcare systems are being stretched beyond the extremes of last spring. Germany looks like following the U.K. in extending lockdown restrictions through the end of the first quarter. Google (NASDAQ:) mobility data show a clear drop in activity all across the continent at the start of the new year.

Further afield, China has now locked down nearly 30 million people to contain a new outbreak. Most worryingly of all, the disease is ravaging parts of Brazil – notably the state of Amazonas around Manaus, which was widely thought to have achieved herd immunity after a severe initial outbreak last year. The city is registering five times its usual daily death rate amid reports that hospitals have run out of oxygen for patients needing ventilation. Amazonas has appealed to the United States to send a military transport plane with oxygen cylinders, Brazil’s Health Minister Eduardo Pazuello said on Thursday.

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