European stocks dropped on Friday as uncertainty weighed on the travel industry and stalled negotiations for fresh US stimulus suppressed hopes of a swift recovery in the world’s largest economy.

The continent-wide Europe Stoxx 600 fell 1.3 per cent in morning trade, with stocks linked to tourism among the biggest losers. London’s FTSE 100 and the CAC 40 in Paris dropped 1.7 per cent, while Frankfurt’s Xetra Dax slipped more than 1 per cent.

Travel companies sank following the UK’s decision late on Thursday to place travellers returning from France and the Netherlands under quarantine for 14 days. Paris is expected to follow suit with reciprocal requirements. Shares in easyJet and British Airways’ parent International Airlines Group fell about 6 per cent, while those in Ryanair and Tui dropped more than 5 per cent.

Strategists said the UK decision added to concerns that the recent rise in coronavirus cases across Europe could snuff out the still-fragile economic recovery in the region.

“The second wave is already happening,” said Art Baluszynski, head of research at Henderson Rowe. “There is definitely a risk of Europe going into lockdown, or at least some measures that could inhibit the economy bouncing back.”

European equities were also likely to be hit harder by a second wave than American stocks, he added, due to the higher proportion of “old economy” companies and the lack of tech businesses that have benefited during lockdowns. S&P 500 futures were down 0.2 per cent although the US benchmark remained near its all-time intraday high.

US Treasuries steadied on Friday after a sell-off this week that sent yields higher, following a record $26bn auction of 30-year bonds that saw depressed demand. The yield on the US-10 year Treasury note fell 0.01 percentage points on Friday to 0.7061 per cent.

US stocks ended slightly lower on Thursday despite data showing the number of people who filed for unemployment benefits over the previous week fell below 1m for the first time since the pandemic began. Economists had forecast jobless claims of about 1.1m.

The positive figures dented traders’ expectations that the White House and Congress would quickly agree on a new support package for millions of Americans left unemployed by Covid-19.

“The biggest swing factor is what’s going to happen on the fiscal side,” said Elizabeth Geoghegan, fixed income portfolio manager at Mediolanum.

Nancy Pelosi, the Democratic speaker of the House of Representatives, doused optimism on a breakthrough late on Thursday when she said that no progress had been made towards a deal and no further meetings with Republicans had been scheduled.

Chinese stocks were the best performers in the Asia-Pacific region, despite economic data for July that came in below expectations.

Mainland China’s CSI 300 index rose 1.5 per cent following news that retail sales in the country had dropped 1.1 per cent year on year, the seventh straight month of declines, versus predictions for a 0.1 per cent rise.

Yu Song, chief China economist at Goldman Sachs, said the latest flurry of data raised the prospect that Beijing would hold its position on stimulus measures. “With activity growth and unemployment largely steady . . . inflation rising and the virus increasingly under control without full-scale lockdown, policymakers likely see a lack of strong rationale to loosen their policy stance incrementally for now,” he said.

Investors will turn their attention to a meeting between US and Chinese officials over the weekend to review the progress made on their “phase one” trade agreement.

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