European shares take U-turn on rising virus death toll

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, 24 March.

European stocks turned choppy again on Wednesday with bourses across the region wiping off most of their early morning gains as a sharp rise in the coronavirus death toll brought back panic.

World markets enjoyed their best one-day percentage gain since the 2008 financial crisis on Tuesday, adding roughly $3.4 trillion, as the United States was on track to approve a massive stimulus package to curb the pandemic’s economic toll.

However, fear returned after Spain reported 738 fatalities from the coronavirus in the past 24 hours, the steepest increase since the epidemic hit the country.

The pan-European STOXX 600 index was up just 0.5%, retreating from a more than 4% jump in the morning. Cyclical sectors such as energy .SXEP and travel & leisure .SXFP were still the biggest boosts to the index.

A London-based trader said the change in sentiment was in part due to a sharp rise in the European death toll from the coronavirus and also reflected that investors were nervous ahead of US Senate’s vote on the $2 trillion coronavirus stimulus package.

European stocks surged in recent days on stimulus measures but are far from covering their steep 25%-plus losses from February peak as analysts continue to take a red pen to their estimates.

With the pandemic still far from contained in Europe, several more companies have warned of lower profits, layoffs and a halt in business activity amid widespread national lockdowns.

UBS said it expects a deep recession which will see Europe’s earnings fall by a third in 2020.

On Wednesday, US officials reached a deal on a $2 trillion package to aid small businesses and Americans hit by layoffs due to the health crisis. The Senate will vote on the package later in the day and the House of Representatives is expected to follow suit soon after.

“It’s very good that authorities came up with monetary and fiscal co-ordination, but that’s only damage limitation and it doesn’t necessarily help to stimulate the economy yet because we’re still in a lockdown,” said Stefan Koopman, senior market economist at Rabobank. “Over the course of the summer, economic activity can pick up a little bit, but even then we’re still way behind growth rates from 2018 and 2019. It will be a very very long year for Europe.”

European airlines, one of the worst hit sectors from travel restrictions and evaporating passenger numbers over fears of contagion, have appealed to governments for bailout packages to prevent an industry collapse.

Air France-KLM, British Airways-owner IAG, Ryanair and EasyJet gained between 1% and 8% amid the broader rebound.

Export-heavy German shares .GDAXI index led the reversal Wednesday noon falling 1.7%, a day after posting their best day since 2008, while Europe's fear gauge .V2TX jumped 6 points to 58.6 after dropping for four straight days as a modicum of calm returned to financial markets.

“The Vix ... most certainly needs to fall below 30 and only then the real buyers return,” said Stephen Innes, a markets strategist at AxiCorp.

“Ultimately none of that will happen until the data has bottomed and signs of life emerge around the world.”

More on this subject: Coronavirus

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