Caution Reigns in European Markets After Virus-Spurred Rout

(Bloomberg) -- European markets extended losses from Monday’s rout as pessimism over the coronavirus’s impact showed no sign of easing.

An early rebound in the region’s equities fizzled, with the Stoxx Europe 600 Index trading down 0.8% as of 10:37 a.m. in London as coronavirus cases jumped in Italy and Iran. Italian government bonds extended a drop, while the country’s FTSE MIB Index slid 1.2%. The euro swung between gains and losses.

The Stoxx 600 yesterday tumbled the most since the aftermath of the 2016 Brexit vote as the spread of the virus beyond China into countries such as South Korea sparked worries that the epidemic may have a longer-lasting impact on global growth than previously thought. The gauge is now down for the month, giving up gains of as much as 5.7%.

“The real economic dangers of further global expansion are now evident,” said Carsten Mumm, chief economist at Donner & Reuschel. “It is particularly serious that there is a supply and demand shock at the same time.”

Coronavirus cases topped 80,000 worldwide, with South Korea now the country with the highest number of infections outside of China. The World Health Organization called the new cases “deeply concerning,” but stopped short of calling the outbreak a pandemic.

Italy’s FTSE MIB Index extended losses into a fourth day, heading for its lowest level in more than two months. The yield on the country’s 10-year bonds rose 3 basis points. Bund futures rose 31 ticks to 175.89.

“Right now the market is saying yesterday’s move was appropriate given the risks in Italy, Korea, Iran and elsewhere,” said Jordan Rochester, G-10 foreign-exchange strategist at Nomura International Plc in London. “But there are hopes of a recovery in China migration indices and early signs of a return to work in China that may help caution against further aggressive risk-off positions.”

All of the 19 Stoxx 600 industry groups fell. Carmakers were the worst performers, after Monday’s biggest slump since June 2016, followed by banks.

“There is no room for strong convictions here as we’ve warned before,” said William Hobbs, chief investment officer at Barclays Investment Solutions in London in a LinkedIn post. “However, while the likely scale of the near-term economic damage has risen in the last week, we are still far from convinced that a global recession will result.”

--With assistance from Jan-Patrick Barnert, William Shaw and Macarena Munoz.

To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Jon Menon, Beth Mellor

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