European shares fall to one-month lows, battered by the surge in COVID-19, while volatility nears four-month high

• European shares fall to their lowest since late September, dragged down by concern over the spread of coronavirus and the lack of progress on US stimulus talks, which offset strong quarterly bank earnings.
• Market gauge of European investor nervousness nears four-month high, as cases of COVID-19 across the region trigger new lockdown restrictions.
• "Markets 'blue sky' disposition is taking quite a battering from reality," ADM Investor Services Marc Ostwald said.

European shares fell to their lowest in a month on Tuesday, under pressure from investor concern over the economic impact of yet more restrictions on movement, as the surge in cases of COVID-19 across the region offset strong bank earnings and a modest pick-up in US stock futures.

The Stoxx 600 fell 0.4%, as losses in travel, leisure and retail stocks wiped out gains from the financial and technology sectors, while yields on safe-haven German Bunds fell and a measure of European equity investor nervousness neared four-month highs. The index of the 600 biggest European stocks dropped to its lowest since September 25.

"Markets 'blue sky' disposition is taking quite a battering from reality," ADM Investor Services Marc Ostwald said.

The British government on Monday announced new restrictions on movement in the north of England, where the rise in cases of COVID-19 has been the most alarming, meaning there are now 8 million people in high-risk areas.

The pound fell broadly, dropping 0.1% against the dollar and the euro, and by 0.2% against the yen.

"An increase in mobility restrictions in Europe, a continued impasse on US fiscal stimulus, the US election, and corporate earnings all weighed on equity markets to kick off the week. Investors should consider using market volatility to build long term equity positions," Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note.

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Spain has called a state of national emergency, and put various major cities in lockdown, while Italy has announced tighter restrictions, such as forcing bars and restaurants to close early, and France has imposed curfews and other measures on some of its largest cities, including Paris.

"It was the harsh lockdown Italy had to introduce to contain the first wave that caught the attention of the markets," London Capital Group strategist Jasper Lawler said. "What Italy does in the second wave – and whether it can avoid a national lockdown – could again be key to market psyche."

German Bund yields fell 2 basis points to -0.587%, as prices were buoyed by an influx of safe-haven cash. The VDAX-New, a proxy for European investor risk-appetite, rose by nearly 12% on the day to its highest since early July.

Europe's biggest lender, HSBC, saw its shares rise by as much as 6%, after saying it had cut provisions for loan losses in the third quarter and would return a dividend to shareholders this year. Meanwhile, Spain's Santander rallied by almost 5% after posting a near-300% rise in third-quarter net profit.

US stock futures edged up, suggesting the major indices may pare some of the previous day's steep losses that were triggered by record-breaking rises in daily cases of COVID-19 around the country and no progress in talks between Democrats and Republicans on another round of financial aid for households and businesses.

The two sides are now not far apart. Democrats are seeking $2.2 trillion in additional spending, while the White House has offered nearly $1.9 trillion. But there appears to be little evidence that either side is willing to budge, with a week to go to the presidential election.

House Speaker Nancy Pelosi on Monday fiercely criticized the Trump administration for not including a national virus-testing and -tracing strategy in its stimulus proposal.

Futures on the S&P 500, the Dow Jones and the Nasdaq 100 were up between 0.1 and 0.4%. The three benchmark indices fell by 1.4-2% the previous day.

The dollar index was flat, which helped encourage a raft of bargain-hunting across the commodities sector. Crude oil rallied, partly reversing some of Monday's 3% slide. Brent crude futures were last up 0.7% at $41.09 a barrel, while WTI crude futures rose 0.7% to $38.83 a barrel.

"The situation on the oil market remains confusing and ominous, however. Further transport restrictions are looming on the already embattled demand side," analyst at Commerzbank said in a note.

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