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European Stocks Slide Most in Three Weeks on Banking, Oil Gloom

European Stocks Slide Most in Three Weeks on Banking, Oil Gloom

(Bloomberg) -- European stocks slumped the most in almost three weeks, ending their longest rally since November, led by declines in oil & gas and banking shares.

The Stoxx Europe 600 Index was down 3.3% at the close of trading, snapping five days of gains. Energy shares slumped the most in a month as WTI crude hit a 2002 low after the International Energy Agency said an OPEC+ output-cut deal won’t be enough to counter a record demand slump this year.

Banks also tumbled after reports from Goldman Sachs Group Inc. to Citigroup Inc. and Bank of America Corp showed dramatic declines in year-on-year earnings. Commerzbank AG, Credit Agricole SA and Deutsche Bank AG all fell more than 8%.

Europe’s benchmark had climbed from a March low as the rate of new coronavirus infections slowed in many major countries, closing within a whisker of a bull market on Tuesday following better-than-expected data from China. Shares have still only recouped about a third of the losses since a Feb. 19 high.

“The market is underestimating the impact of measures required to contain COVID-19 and the downgrade to corporate earnings,” said Emiel van den Heiligenberg, head of asset allocation at LGIM.

European Stocks Slide Most in Three Weeks on Banking, Oil Gloom

Investors will closely assess the earnings season kicking off this week for more clarity on the impact of the virus-led lockdowns on corporates. Dividend and buyback cuts, as well as reduced profit projections will be especially in focus.

Adidas AG dropped 4.7% as it suspended its dividend after getting 3 billion-euro in aid from the German government and banks. TomTom NV declined 4.9% after pulling its 2020 outlook, citing uncertainty from the severity and duration of the pandemic’s economic impact.

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“Market participants are taking a cautious stance after the recent bounce,” said Stephane Ekolo, an equity strategist at TFS Derivatives. “Unlike some who might think the focus on earnings season isn’t much this time besides the guidance or lack thereof, I think the most important part will be to see how severely analysts will slash their estimates for FY20. The valuations for the Stoxx 600 on a blended forward P/E basis remains too high in my opinion.”

Stoxx 600 valuations have rebounded in the recent rally, with its members trading close to 15 times their estimated earnings on a 12-month blended forward basis -- near levels they were at before the rout took hold in late February. While dire first-quarter results shouldn’t be a shock, it could still be a reality check for markets after recent gains, Barclays strategists wrote.

©2020 Bloomberg L.P.