Tech stocks outperform as investors note rise in Covid cases

European equities traded close to their record highs, with tech stocks outperforming, as investors took note of the worsening pandemic situation and bought up shares in companies seen as beneficiaries of working from home and lockdowns.

The Stoxx 600 regional equity benchmark index opened 0.1 per cent higher on Wednesday, inching back towards its record level achieved last Friday, after the US S&P 500 achieved a fresh high in the previous session. London’s FTSE 100 and Germany’s Dax were both flat.

The technology and healthcare subsectors of the Stoxx rose 0.5 per cent while shares in companies whose fortunes are pegged to economies reopening did worse, with banks falling 0.5 per cent and industrials slipping 0.1 per cent. This mimicked similar sector rotations in the US and Asia overnight.

Vaccine

The moves came after drugmaker Johnson & Johnson said it would delay the distribution of its Covid-19 vaccine in Europe after US health agencies called for a pause of the jab’s use on Americans while they investigate several incidents of rare blood clots.

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Infections are also continuing to surge in Brazil and India, while cases of the Covid-19 variant first detected in South Africa have been found in the UK.

"There is a bit of fear coming back," said Paul Jackson, head of asset allocation research at fund manager Invesco. But with the returns on credit assets very weak, investors had few moneymaking opportunities beyond stocks, he said. "All news is good news at the moment and everything is a pretext for equity indices to go up."

Real yields on US 10-year and 20-year Treasury bonds, which measure returns on the government debt instruments once inflation is taken into account, are below zero, pinned down by the US central bank buying about $120bn of the assets each month. “As investors sell debt securities to the Federal Reserve they have to put the money into another asset,” said Jackson. “So that is stocks or commodities.”

Contracts

In Asia, Hong Kong’s Hang Seng index rose 1.3 per cent, led higher by healthcare and tech stocks. Japan’s Nikkei 225 closed 0.4 per cent lower. Futures markets signalled that both the US S&P 500 and the technology-focused Nasdaq Composite would be flat at the New York opening bell, although trading in these contracts during the European morning is often thin.

The yield on the 10-year US Treasury, which moves inversely to the price of the debt, was steady at 1.632 per cent.

The dollar, as measured against a basket of currencies, edged 0.1 per cent lower. Sterling added 0.3 per cent against the dollar to purchase $1.379. The euro rose 0.1 per cent to $1.196.

Brent crude, the international oil benchmark, gained 1.2 per cent to $64.42 a barrel. – Copyright The Financial Times Limited 2021