Europe Stocks Repeat Cycle of Morning Gain, Then More Virus Pain

(Bloomberg) --

For a second day, European stocks began the day on a strong note, only to reverse gains in afternoon trading on worries of insufficient policy response to counter the impact of the spreading coronavirus.

The Stoxx Europe 600 Index slipped 0.7% at the close, wiping out an earlier jump of 2.3%. The benchmark tracked declines on Wall Street after details failed to emerge on what President Donald Trump said would be “major” measures to combat the effect of the outbreak.

Equity investors remain jittery despite central-bank efforts to cushion economies from the blow dealt by the virus outbreak, which the World Health Organization has now declared a pandemic. Stocks had risen earlier in the day after the Bank of England cut rates by 50 basis points to 0.25% and the European Central Bank indicated it will act as soon as this week, with President Christine Lagarde warning of a 2008-style crisis unless urgent steps were taken.

“Whipsaw markets with 5% plus moves will probably be here to stay for a while,” Frederik Hildner, portfolio manager at Salm-Salm & Partner, said by phone. “In the weeks ahead, brace yourself and your portfolios for an arm-wrestling match between market forces and the monetary as well as the fiscal institutions.”

The stock market slump that kicked off this week had echoes of the global financial crisis that saw a meltdown in risk assets following the collapse of Lehman Brothers in 2008. Back then, European equities suffered a further blow from the region’s ensuing debt crunch, before former ECB chief Mario Draghi stepped in with his 2012 pledge to do “whatever it takes” to preserve the euro, following it up with unprecedented quantitative easing.

His successor warned late Tuesday of a scenario reminiscent of 2008 without a coordinated response, but said that with the right steps, the shock may prove temporary, according to a person familiar with Lagarde’s comments. That’s fueling bets of strong ECB measures at tomorrow’s meeting.

U.K. stocks also failed to hold early gains, with the FTSE 100 Index closing 1.4% lower. Finance Minister Rishi Sunak’s $39 billion stimulus pledge did little to nudge markets higher. Incoming BOE Governor Andrew Bailey said earlier that the central bank has more room to ease monetary policy if needed.

Most of the 19 industry groups in the Stoxx 600 turned early gains into losses, with the travel & leisure sector worst hit. Oil & gas stocks declined, despite Societe Generale strategists upgrading the sector, saying it has overshot the drop in crude during declines. Only banks, chemical companies and carmakers gained.

“It is wise to position the central banks against the virus,” said Olivier de Berranger, chief investment officer at La Financiere de l’Echiquier. “They won’t be healing us, but they help companies, consumers and states to get out of the crisis faster or easier.”

--With assistance from Jan-Patrick Barnert, Lisa Pham 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, Paul Jarvis

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