Europe close: Early bounce again gives way to selling

A bounce in stock markets across the Continent faltered, mimicking a similar move on Wall Street overnight, as investors grappled with worries about the short-term hit to economic growth from the coronavirus.

"For the most part, bounces are selling opportunities, and this will remain the case until the US government decides to embark on a huge stimulus programme that will make Rishi Sunak’s £30 billion effort seem like a pop-gun by comparison," said IG's Chris Beauchamp.

"But since there is no sign of such a stimulus yet, investors continue to fret about the spread of coronavirus in the US, which seems woefully unprepared to combat such an eventuality."

In overnight news, Italy's government unveiled a roughly €12bn stimulus package that was to be approved on Friday, with finance minister, Roberto Gualtieri, saying Rome was ready to spend as much as €25bn.

That saw Italy's main market gauge close higher, although it was alone among the main market gauges in Europe.

Milan's FTSE Mibtel edged up 0.33% to 17,928.64, but the German Dax fell 0.35% to 10,438.68 and the Cac-40 was 0.57% lower at 4,610.25.

Shares of Italian lenders Banco BPM, UBI and FinecoBank were among the best performers on the Stoxx 600.

Crude oil futures reversed course as well, falling 4.2% to $35.72 a barrel on the ICE after Saudi Arabia vowed to ramp-up output and the UAE said that it too would push for record production.

In an early boost for shares as well, the Bank of England surprised investors with an emergency rate cut before the start of trading, which was followed later by what analysts termed a "big" fiscal stimulus package from the new Chancellor, Rishi Sunak.

Worse headlines may be just around the corner

On Tuesday evening, European Central Bank chief, Christine Lagarde, warned European Union leaders that without a coordinated response, the Continent "will see a scenario that will remind many of us of the 2008 Great Financial Crisis."

However, with the right response, the shock was likely to prove temporary, she added.

Perhaps, but Ian Shepherdson at Pantheon Macroeconomics said: "Over the next week or so, it should be possible to have more confidence in the data as the number of tests ramps up dramatically."

Due to undertesting thus far, the number of coronavirus cases outside of China, especially in the US, was likely much higher than had been reported until now.

"The news will sound alarming, and markets won't like it," he added.

Investors were thus left awaiting the ECB's policy response on Thursday, even as they scanned the headlines coming out of Washington for any news of fiscal support.

There was little in terms of fresh economic data for investors to chew on come Wednesday, save for data showing a 1.7% rise in Spanish retail sales for January (consensus: 1.5%).