Europe open: Short-lived bounce disappears despite speculation central banks might ease
Commerzbank Ag
0.00p
07:45 20/03/24
A small bounce in stocks at the start of trading on Tuesday quickly gave way to renewed selling pressure despite mounting speculation that central banks will be forced to ease policy further in order to offset the impact of the Chinese coronavirus contagion.
Investors also brushed aside news of another slowdown in the number of new cases in China the day before to 415, according to the World Health Organisation's 35th update.
Instead, the focus continued to be on Italy, where the number of reported cases had risen overnight to reach 261, with authorities there still unable to pinpoint the origin of the first infection, while in Iran the number of fatalities hit 15 and Kuwait registered its first case.
"Fears over a coronavirus outbreak throughout Europe have curbed market gains, with gains proving short-lived as traders anticipate a worsening crisis amid Italian shutdown. Meanwhile, German growth in Q4 was hurt by shrinking exports, with the coronavirus impact yet to be felt," said IG's Josh Mahony.
Against that backdrop, as of 1000 GMT the pan-European Stoxx 600 was down 0.53% at 409.66, alongside a 0.55% fall for the German Dax to 12,963.70, while the FTSE Mibtel was down by 0.82% at 23,226.31.
Front month Brent crude oil futures however were little changed, dipping 0.3% to $56.17 a barrel on ICE.
Shares of Commerzbank were at the bottom of the pile on the Stoxx 600, alongside declines in Spanish lenders Bankia and Banco Sabadell, whilst stock in ST Micro was the top gainer.
Unsurprisingly, as a group, lenders' shares were weakest, with the Stoxx 600 sector gauge down 1.6%.
To take note of, expectations for a 10 basis point cut in the European Central Bank's deposit rate before year end 2020 had shifted from roughly 52% on 21 February to 75% as of Monday, analysts at Rabobank pointed out.
"Given the impossibility of the virus remaining an Italian problem (the global spread makes it clear that this is set to be an issue facing Europe as a whole), the market is only likely to price in a greater possibility of an ECB response," they added.
lenders's shares were weakest, with the Stoxx 600 sector gauge down 1.6%.
To take note of, expectations for a 10 basis point cut in the European Central Bank's deposit rate before year end 2020 had shifted from roughly 52% on 21 February to 75% as of Monday, analysts at Rabobank pointed out.
"Given the impossibility of the virus remaining an Italian problem (the global spread makes it clear that this is set to be an issue facing Europe as a whole), the market is only likely to price in a greater possibility of an ECB response," they added.
Elsewhere on the economic side of things, German gross domestic product was flat over the fourth quarter in comparison to the previous three-month stretch, as expected.
In year-on-year terms, the rate of growth in German GDP slipped from 0.6% to 0.4%, which was also as anticipated.
Regarding the coronavirus, while not trying to "downplay the seriousness of the coronavirus outbreak", Michael Hewson at CMC Markets UK said that it could also be argued that "closing borders and restricting movement is actually making things worse, as well as sowing confusion and fear amongst their populations."
One researcher, Ester Lazaro, at Spain's research council, CSIC, sounded a similar opinion, arguing that in a year the common fly killed more people in Spain than had yet died in China.