European Shares Drop as Banks Lead Declines on ECB, Brexit Woes

(Bloomberg) -- European shares were led lower by lenders, after the European Central Bank expanded measures to battle the coronavirus crisis and as Brexit woes continued to weigh on market sentiment.

The Stoxx Europe 600 Index fell 0.4% by the close in London. Banks were the worst-performing sector amid a cocktail of largely negative developments. By contrast, energy stocks surged along with oil.

The European Central Bank boosted its emergency program by 500 billion euros ($606 billion) and extended it by nine months, while also locking in low interest rates at least until the pandemic crisis is over. Meanwhile, continental European watchdogs were said to favor a longer curtailment of bank dividends into next year, though the Bank of England relaxed its de-facto ban on payouts, in an apparent victory for large U.K. lenders.

However, the increasing chance of Brexit talks ending with no deal weighed on the shares of Britain’s Lloyds Banking Group Plc, NatWest Group Plc and Barclays Plc.

As the ECB boosted efforts to protect the euro zone from deeper economic pain it cautioned, in relatively restrained comments, that it may not deploy all of the new war chest.

“While the ECB is providing strong incentives for banks to lend to the private sector, we had hoped for somewhat stronger signals with respect to counteracting a potential further tightening of bank credit standards and enhancing the transmission of its policy stance,” said Florian Hense, a strategist at Berenberg Bank.

Uncertainty over Britain’s trading relationship with the European Union is rising as post-Brexit negotiations are said to be on course to end without a deal. The FTSE 100 Index was up the most among major markets in Europe, as the pound dropped. By contrast, more domestically focused British stocks declined, with the FTSE 250 down 0.6%.

“What is important is that you have a new set of certainties that will allow businesses to plan properly,” Rob Burgeman, investment manager at wealth manager Brewin Dolphin, said. “The foggy miasma of the negotiation process has simply not allowed that to take place, so any resolution should be seen as a positive.”

©2020 Bloomberg L.P.