Investor Alert

Europe Markets

Feb. 12, 2021, 6:27 a.m. EST

European stocks and U.S. equity futures struggle as Italian bond market cheers Mario Draghi

By Barbara Kollmeyer

European stocks and U.S. equity futures fell on Friday, as investors watched COVID-19 headlines and struggled to find catalysts to push markets higher. Italian bonds were in the spotlight, rallying after former European Central Bank President Mario Draghi got key backing to form a new government.

The Stoxx Europe 600 index (STOXX:XX:SXXP) dipped 0.2% after a roughly 0.5% gain on Thursday. The German DAX (XEX:DX:DAX) fell 0.7%, the French CAC 40 (PAR:FR:PX1) dropped 0.3% and the FTSE 100 (FTSE:UK:UKX) slipped 0.1%. The euro (XTUP:EURUSD) and pound (XTUP:GBPUSD) both fell against the dollar.

The gap between yields on the Italian (XTUP:BX:TMBMKIT-10Y) and German 10-year bunds (XTUP:BX:TMBMKDE-10Y) tumbled to a six-year low on Friday. That is after the 5 Star Movement, in an online vote, backed joining a government led by Prime Minister-delegate Draghi.

Draghi will next week face confidence votes in parliament and on Friday unveil his list of cabinet members to President Sergio Mattarella. He was asked to form a government last week after the collapse of the prior coalition, and is viewed by many as the best possible chance the country has of emerging from its deep recession brought on by the COVID-19 pandemic.

U.S. stock futures (CME:ES00) (CBT:YM00) (CME:NQ00) were lower after Thursday’s mostly flat session, as investors fretted over elevated jobless claims that indicated an uneven recovery ahead. The S&P 500 (S&P:SPX) and Nasdaq Composite (NASDAQ:COMP) still managed to eke out fresh record highs .

Investors were unsettled on Friday after news that two cases of the South African coronavirus variant have shown up in California. That development is a worry because the strain is highly contagious and appears to be more resistant to vaccines.

Read: U.K. scientist warns new COVID variant will ‘sweep the world,’ as California confirms South African strain

Fresh U.K. data revealed the economy slid 9.9% in 2020, the biggest fall on record and the largest known decline since the Great Frost of 1709, when the economy plunged 13%. However, the U.K. still managed to avoid a double-dip recession, as the economy expanded 1% in the fourth quarter, beating forecasts, noted Michael Hewson, chief market analyst at CMC Markets.

“The Bank of England has already indicated that it thinks the U.K. economy will contract by 4% in Q1 on the basis that while this may be the third lockdown in the space of 12 months, it is by no means anywhere near as onerous as lockdown one,” said Hewson.

There was little in the way of corporate earnings. ING Groep (NYS:ING) (AMS:NL:INGA) reported a sharp fall in fourth-quarter net profit. The decline, though, was less than analysts expected and shares climbed more than 5%, with the bank the best performer on the Stoxx 600.

L’Oreal shares (ETR:XE:LOR) rose 1.8%. The cosmetics giant late on Thursday reported a fall in net profit for 2020, as the beauty market suffered during the pandemic, but higher growth in the fourth quarter.

A lack of investor appetite for riskier assets spread to oil, where Brent and U.S. crude prices (NYM:CL00) were down more than 0.5% each. That weakness weighed on major oil companies, with shares of France’s Total off 0.9%, and a 0.6% drop each for Royal Dutch Shell (NYS:RDS.A) (LON:UK:RDSA) and BP (LON:UK:BP) (NYS:BP) stock.

Link to MarketWatch's Slice.