European stocks reported hefty losses on Thursday and extended the downside in Friday trading amid the threat of a second coronavirus wave in the region.

France has announced new social distancing restrictions and curfews in Paris to avoid the virus spread. The media reports show that the British government is also set to impose new restrictions in London. European stocks dropped more than 2% on Thursday.

Virus and Stimulus Talks Took the Center Stage for European Stocks

The second coronavirus wave took the center stage as several European countries have started reporting massive growth in daily infections. The World Health Organization has warned that virus infections could increase sharply in the winter season.

“We now find ourselves in a scenario whereby the pandemic is back in center stage, while the prospects of a U.S. relief package this side of the presidential election seem very low. Dealers are dumping stocks for fear that economic activity will drop off because of the tighter restrictions in various parts of Europe,” said David Madden, market analyst at CMC Markets U.K.

The fading prospects for the second stimulus package have negatively impacted European stocks in the past few days. The U.S. Treasury Secretary Steven Mnuchin has ruled out prospects for a stimulus package ahead of elections.

US Stocks Falls for the Third Straight Day

US stocks have also been reporting hefty losses over the past three days due to concerns over the stimulus package and poor earnings performances from big banks and airline companies. Tech stocks remained under pressure in the last three days while banking and energy stocks recovered previous losses. Six of 11 sectors closed higher on Thursday after beginning the session in the red.

US stocks are likely to extend the volatility in days ahead amid the earnings season. On the positive side, the polls have reduced uncertainty regarding the presidential elections as polls suggest a big win for Joe Biden over Donald Trump.