European equities bounced back from their biggest drop of the year in the previous session as investors shrugged off caution about the global economy to focus on buying opportunities.

The Europe Stoxx 600, which fell more than 1.7 per cent on Thursday amid concerns about a potential slowdown in China and the intensifying spread of the Delta variant of Covid-19, rose 1.1 per cent in early trades on Friday. The UK’s FTSE 100 gained 0.6 per cent.

Shares in fashion house Burberry, which fell 4 per cent on Thursday, rose 3.8 per cent. The Stoxx travel sub-index, which had dropped more than 4 per cent in the previous three sessions, gained 2.6 per cent after the UK eased travel restrictions for summer holidaymakers.

Futures markets signalled the S&P 500 would gain 0.3 per cent in early New York dealings after Wall Street’s main share index closed 0.9 per cent lower on Thursday.

The Stoxx and the S&P 500 are still trading near record highs ahead of a second-quarter earnings season, where companies are expected to show they have benefited from industries reopening after last year’s shutdowns and from central banks’ easy monetary policies.

“Equity markets are in a state of indecisiveness but with an upward drift,” said Sunil Krishnan, head of multi-asset funds at Aviva Investors.

“There are times when the upward drift has looked almost too smooth, so you do get corrections. But a lot of investors will have been waiting on the sidelines to increase their positions.”

The yield on the benchmark 10-year US Treasury bond, which moves inversely to its price, rose 0.05 percentage points to 1.341 per cent. This yield dropped to a four-month low on Thursday following weaker than expected US service sector growth, with analysts speculating that trend-following algorithmic funds had increased the magnitude of the move.

The Delta variant was also widely cited for the Thursday’s move out of equities and into the safety of US Treasuries.

Mary Daly, president of the Federal Reserve Bank of San Francisco, told the Financial Times that the Delta variant and low vaccination rates in some parts of the world posed a threat to the global recovery.

On Wednesday, China’s government also signalled cuts in banks’ reserve ratio requirements, in a move designed to help small- and medium-sized enterprises that was read by markets as a sign the nation’s economy was losing momentum.

Chinese data on Friday also showed that consumer price inflation remained low at 1.1 per cent in June.

“The market probably over-read the news coming out of China, which is why we are back to a risk-on environment,” said Aneeka Gupta, research director at WisdomTree.

Elsewhere in markets, the dollar index, which measures the greenback against major currencies, rose 0.1 per cent to around its highest level since early April. The euro was steady against the dollar at $1.1832. Sterling slipped 0.1 per cent to $1.3772.

Brent crude, the international oil marker, added 0.9 per cent to $74.79 a barrel.

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