World News

European shares firmly in the red as stimulus hopes fail to hold

By Ambar Warrick and Sagarika Jaisinghani

(Reuters) – European shares marked their worst close in nearly seven years on Wednesday as recent stimulus measures failed to placate investors seeking to exit equities in the face of the coronavirus pandemic.

The pan-European STOXX 600 index closed down 3.9%, negating all of Tuesday’s gains when a bumper stimulus plan from the Spanish government had spurred some buying in regional equities.

The STOXX 600 has lost a quarter of its value in March, and is set for its worst month ever after the epicenter of the outbreak shifted from China to Europe.

Oil and gas stocks, which are among the worst hit by the outbreak with to crude prices sinking on lower demand, ended at their weakest level in 24 years.

London-listed John Wood Group and Tullow Oil were among the worst performers in the sector, ending about 21.7% and 16.9% lower, respectively.

Industrials marked heavy losses amid calls for a $60 billion bailout of the U.S. aerospace industry, with JP Morgan analysts saying it would take years for the sector to recover.

Given that several European players depend on U.S. demand for engineering services and parts, a slowdown in U.S. industrial activity will send ripples across Europe.

Airbus tumbled 22.2% to its lowest since 2016. France’s Safran, which supplies Boeing, ended nearly 23% down, while Rolls Royce dropped about 11%.

“I think we’re probably already in a recession. I don’t see any avoiding that on either side of the Atlantic,” said Cameron Brandt, director of research at fund flow data provider EPFR.

Adding to concerns over the virus, European Central Bank President Christine Lagarde told Europe’s heads of government that lockdowns being imposed to fight the coronavirus epidemic could easily cause the EU’s economy to shrink by 5%, the Frankfurter Allgemeine reported.

“A short recession might not be a bad thing in terms of bringing valuations to slightly more credible levels and perhaps letting the air out of some asset bubbles.”

Among individual movers reeling from the impact of the outbreak is cruise operator Carnival PLC, which bottomed out the STOXX 600, plunging 34% as the global tourism industry saw demand flat-lining.

British IT company Micro Focus International slumped 22.6% after scrapping its final dividend.

Volkswagen <VOWG_p.DE> said it would halt production at three Polish plants, while a handful of British pub and restaurant operators said they were seeking leeway on debt arrangements with their banks, due to the UK advising against social gatherings.

(Reporting by Sanjana Shivdas and Sagarika Jaisinghani in Bengaluru; Editing by Patrick Graham, Anil D’Silva and Timothy Heritage)