Fleeting Gain, Then More Pain: European Stocks in Five Charts

After the biggest weekly rout since 2008, European equity investors who were expecting a rebound got one, only to see it fizzle out by Thursday.

Optimism over policy measures aimed at stemming the fallout from the coronavirus outbreak proved brief. The Stoxx Europe 600 Index barely recouped a quarter of the slump before tumbling to new 2020 lows by the end of the week as a rising number of profit warnings and the spread of the coronavirus outside China spooked investors.

Companies from auto-parts maker Continental AG to fashion retailer Hugo Boss AG to broadcaster ITV Plc this week warned they would take a hit from the virus. Deutsche Lufthansa AG slashed capacity by up to 50% to cope with the severe fall-off in travel. A number of money managers including Pictet Asset Management have reduced their equity allocations, while sell-side strategists from Barclays Plc to Goldman Sachs Group Inc. have been busy cutting their earnings forecasts.

“I expect economists and equity analysts to continue to slash their growth expectations,” Merck Finck Chief Strategist Robert Greil said.

All eyes are now on the European Central Bank, following the Federal Reserve’s emergency rate cut and spending pledges from governments of several countries including Italy to combat the impact of the outbreak. The euro is trading near an eight-month high, adding pressure on the ECB to act.

So how bad was it? Here’s five charts that show how wide the sell-off went.

Bear Markets:

A number of sectors have now plunged into bear market territory. Travel & leisure shares, particularly airlines, have been hammered, with demand for flights plummeting across the world. Miners and steelmakers, highly dependent on global growth, are also feeling the pinch, alongside banks.

Struggling Banks:

Banks have been hit especially hard as investors fear the virus will rock credit markets and trigger a surge in loan losses. The sector index on Friday fell to its lowest level since early 2009 — when shares were reeling from the aftermath of the Lehman Brothers Holdings Inc. collapse months earlier.

Defensives vs Cyclicals:

The outperformance of sectors seen as more defensive plays such as utilities and health care, combined with the collapse of cyclical shares, has pushed the ratio between the two groups to its highest level in more than three years.

Profit Warnings:

And things may get worse. Profit warnings from companies mentioning the coronavirus have been soaring, signaling that the ripple effect on the economy and corporate profits may just be starting.

Italian Stocks:

Equities in Italy, the heart of the virus outbreak in Europe, are flirting with bear market territory, despite the government doubling the amount planned to help contain the fallout from the epidemic. The FTSE MIB Index, which only months ago posted its biggest annual advance in two decades, is now down 18% from its Feb. 19 peak. The country is at risk of recession after the spreading coronavirus has all but paralyzed business activity in the country’s rich northern regions.

— With assistance by Jan-Patrick Barnert

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