European underperformers continue to find favour

Gains throughout much of Europe come as the vaccine-led recovery boosts value names. UK efforts to reopen for the festive period should help alleviate businesses losses, but they also raise questions over a third wave. Meanwhile, OPEC reconvenes as crude heads lower.  

• European laggards expected to continue playing catch-up.

• UK decision to loosen restrictions could result in swift third wave.

• Crude heads lower as markets await OPEC decision.

European markets are grinding higher in early trade, marking a distinct change from the largely pessimistic tone struck in Asia overnight. With vaccine announcements helping to lift sentiment over the past three Mondays, we look set for the best month on record for the FTSE 100. That vaccine hope should drive European outperformance in the months ahead, with November seeing a shift from growth to value that should continue to help drive lagging indices such as the FTSE 100, CAC, Ibex, and FTSE MIB. While the reversal of that growth/value dynamic looks likely to continue as the vaccines take hold, the short-term economic pain seen off the back of widespread economic restrictions should ensure a more balanced market view after recent gains. On the positive side, signs that the UK is managing to bring the trajectory of the virus under control helps lessen fears of a drawn-out period of lockdown coming into play. The decision to allow non-essential shops to reopen this week provides a much-needed boost to the high street given the importance of seasonal shopping. However, with while the decision to relax restrictions comes greater risk of a third wave as we bring in the new year.  

Crude prices have been hit in early trade, as weekend OPEC negotiations hint at a somewhat less one-sided debate than many had hoped for. Recent vaccine announcements have helped lift hopes of a sharp rebound in demand for crude, yet the question now is how much energy should be priced based on the future prospective demand or current reality. From an OPEC perspective, the question is whether foster this recovery or send energy prices lower once again. The two-million barrels per day increase that would come in the absence of a deal would deal a serious blow to market sentiment as much as supply/demand levels themselves, indicating that the group are unwilling to support energy prices until demand returns.  

Ahead of the open we expect the Dow Jones to open 163 points lower, at 29,747.