Europe: Stocks trim second weekly gain as travel shares sink

[BENGALURU] European equities dropped as the prospect of further restrictions threatened a nascent economic recovery, with travel stocks leading losses.

The Stoxx Europe 600 Index fell 0.7 per cent at the close, trimming its weekly gain to just 0.2 per cent. Banks and carmakers also underperformed, down more than 2 per cent each.

Mall owners Unibail-Rodamco-Westfield, Klepierre and Hammerson plunged after a broker downgrade on Unibail, while potential measures to prevent the spread of Covid-19 also weighed on the sector.

Travel and tourism industries appealed to the European Commission to push governments to end quarantine requirements, while Ryanair Holdings said it would reduce its October capacity by a further 20 per cent, in addition to a cut announced in mid-August.

Banks remained in the red even after European regulators were said to move closer to lifting a de-facto ban on dividends at the start of next year.

On another very active day for deals, CaixaBank SA and Bankia SA approved a combination to create Spain's biggest lender, German plastics maker Covestro AG surged on a report buyout firm Apollo is exploring a takeover, and London Stock Exchange Group Plc entered into exclusive talks with Euronext NV in relation to the sale of the Borsa Italiana group.

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European stocks have remained in a narrow trading range since June, showing little momentum, with investor optimism about an economic rebound bruised by rising coronavirus cases, a delay in vaccine progress, ongoing trade tensions and political risks related to Brexit and the US election.

Strategists aren't bullish either. On average, they see little upside for the Stoxx 600 into year end after their brisk rebound in the first half of 2020, with a consensus target of 371, according to a Bloomberg monthly survey.

"One should not be too much surprised with the narrow range of trading displayed since June," said Oddo BHF strategist Sylvain Goyon.

"After all, the current index level is already pricing a better than originally anticipated macro dynamic and supra-accommodative monetary conditions."

BLOOMBERG