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  • The Stoxx 50 index of top eurozone shares hits its lowest in four months, while German bond yields fall to their lowest since mid-March.
  • Surging cases in France may bring another national lockdown, which hit the euro, the oil price and French banking stocks in particular.
  • "Markets have already begun to price in further lockdowns - partial or complete ones," Milan Cutkovic, market analyst at Axi said.
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European shares slid to their lowest in four months, tumbling by more than 3%, as investors fled risk assets in light of the onset of more lockdown restrictions at the heart of the eurozone economy, battering bank stocks and the oil price. 

Adding to the risk aversion was a degree of nervousness ahead of next week's US presidential election, as record increases in US cases of Covid-19 met uncertainty over the potential for a closer race than expected for the White House.

The Stoxx 50 index of the top euro zone shares dropped by 3.3% to its lowest since late May, set for its largest one-day drop in over a month. The index has now lost almost 7% in October, the most in one month since March. 

Every major equity sector was in the red, with banks and oil and gas indices suffering the heaviest losses, down 3.8 and 3.4%, respectively. 

With the threat of more damage from the coronavirus pandemic dangling over the economy, the oil price tumbled by almost 4% and investors flocked to the comparative safety of the US dollar, sending the dollar index up by 0.4%. 

"With Germany and France rumoured to be on the cusp of announcing a nationwide lockdown, it comes as no surprise to see those economic fears centered around Europe. Meanwhile, with the US election due next week, traders have plenty of reason for hesitancy," IG Markets analyst Joshua Mahony said. 

Bank stocks are among the most sensitive to the ebb and flow of investor confidence in the economy and many of the region's heavyweight financial stocks came under fire. Investors reserved their harshest punishment for the French banks, driving Natixis, Credit Agricole, BNP Paribas and Societe Generale down by 6-7%. 

France could enter another national lockdown this week, according to French daily Liberation, as spiraling cases of Covid-19 have prompted President Emmanuel Macron to address the country on Wednesday evening.

The VDAX-New, which reflects investor risk appetite, shot up by nearly 13% to its highest since late June. Ten-year German bond yields dropped 3 basis points to -0.636%, its lowest since the depths of the coronavirus market crisis in early March. French bond yields were almost unchanged at -0.33%. 

"Markets have already begun to price in further lockdowns - partial or complete ones. Whether it will come to a dramatic crash as seen in March, or markets are able to bounce back soon will primarily depend on how quickly and decisively governments and central banks will react to the second wave of infections, which is bringing further restrictions on everyday life,"

The euro slid against most major currencies, losing 0.3% against the dollar and 0.4% against the yen

US stock futures fell between 0.9 and 1.6%, pointing to another drop on Wall Street later, when investors will have to digest a slew of earnings from the likes of Boeing, Visa, Mastercard and Etsy. In Asia, equities bucked the trend lower, leaving the Shanghai Composite up 0.5% and the KOSPI up 0.4%, while the Nikkei lost 0.3%. 

Meanwhile, Bitcoin continued its meteoric rise towards $14,000, hitting its highest since January 2018 and bringing gains this month to 26%.

Brent crude futures fell 3% to $40.37 a barrel, while WTI fell 3.7% to $38.90 a barrel and the entire energy complex slumped. Heating oil futures, which are usually strong outperformers as Europe enters the winter season, dropped 2.7%.

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