Tech stocks outperform as investors note rise in Covid cases

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European equities traded close to last week’s record highs, with tech stocks outperforming, as investors took note of the worsening pandemic and gravitated to shares in companies seen as lockdown beneficiaries.

The Stoxx 600 regional equity benchmark index gained 0.2 per cent, 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 also added 0.2 per cent and Germany’s Xetra Dax dipped 0.1 per cent.

The technology subsector 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. This echoed similar sector rotations in the US and Asia overnight.

Futures markets signalled the top 100 stocks on the technology-focused Nasdaq would rise 0.3 per cent in New York opening trades, while the broader based S&P 500 index would gain 0.1 per cent.

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 investigated several incidents of rare blood clots.

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.”

Brent crude, the international oil benchmark, gained 1.6 per cent to $64.69 a barrel.

The yield on the 10-year US Treasury, which moves inversely to the price of the debt, rose by 0.01 percentage point to 1.632 per cent.

Despite real yields remaining negative, nominal Treasury yields have risen rapidly from around 0.9 per cent at the start of this year as investors sold off the debt in anticipation of a jolt of inflation from US president Joe Biden’s multitrillion dollar stimulus schemes.

The Treasury market has returned to its usual steady state in recent weeks, however, as investors accepted Federal Reserve chair Jay Powell’s view that inflation spikes would be temporary.

“Treasury markets are following chair Powell’s recommendation to treat the next few months of inflation data as throwaways — transient observations with little useful signal,” said Nicholas Colas of DataTrek Research.

The dollar, as measured against a basket of currencies, edged 0.1 per cent lower. Sterling added 0.1 per cent against the dollar to purchase $1.376. The euro also rose 0.1 per cent, to $1.195.

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