European stocks drifted lower at the opening on Monday, extending losses registered earlier this morning by Asian benchmarks, as the appetite for risk assets decreases. This risk-off mood, initially triggered last Thursday by fears of a second virus wave, has been confirmed over the weekend after a rise in the number of new COVID-19 cases were spotted in many different areas such as Japan, Beijing and the US (20 states). In addition, macro data added to this global disappointment this morning after Chinese retail sales continued to drop and the industrial production came in below expectation. Even if higher volatility may come from multiple monetary policy meetings this week (BoE, BoJ and Swiss National Bank), the risk-off tone will prevail as more and more investors view the economic recovery to be longer than previously expected. Meanwhile bonds, precious metals and other safer havens are likely to be used as diversification tools this week as traders try to hedge their portfolio against these rising downside risks on stocks.
Technically speaking, the Stoxx-50 Index is now trading inside the lower part of its bullish canal, slightly above the strong 2,850-3,050pts support zone, which is the last remaining support before the bullish trend would become invalidated.
Pierre Veyret– Technical analyst, ActivTrades
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