Europe: Shares drop as manufacturing crash spells more pain

[BENGALURU] European shares ended Wednesday lower amid increasingly dire economic readings due to the coronavirus, while bank stocks plummeted as several majors suspended dividend payments.

The pan-European Stoxx 600 index closed 2.9 per cent down, with Tuesday's session rounding off its worst quarter in nearly 18 years during which it lost about US$2.8 trillion in market value.

A survey showed that euro zone manufacturing activity collapsed in March, with analysts predicting that prolonged disruptions in the sector could have a lasting, deep-seated impact on the economy.

"Because business activity and production have been slashed to extremely low levels and containment measures still have to prove their effectiveness, most firms are confronted with a dramatic fall in revenues, which is bound to lead to a rapid rise in unemployment," said Davide Oneglia, Economist at TS Lombard.

"We expect a severe recession in the euro area in H1 and only a modest recovery thereafter."

Profit for companies listed on the Stoxx 600 is now expected to slide by a fifth in the second quarter, deepening a European corporate recession, while dividends paid by those firms are forecast to fall by about 40 per cent.

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Bank stocks were among the worst performers for the day, dropping 5.8 per cent. Heavyweights HSBC, Santander and Lloyds of London were among the biggest drags on the sector after suspending dividend payments to shore up liquidity.

Travel and leisure stocks dropped 6.4 per cent, negating the prior session's gains as the sector still faced immense pressure from widespread movement restrictions due to the outbreak.

Cruise operator Carnival PLC sank around 20 per cent after ratings agency Moody's downgraded the firm's senior unsecured rating. The stock also bottomed out the Stoxx 600.

"It would be naive to assume that the virus saga is already priced in," said Charalambos Pissouros, senior market analyst at JFD Group.

"We see decent chances for equities to trade south and for safe-havens to shine again."

A fall in stocks across the Atlantic also rattled investors, as the impact of the outbreak was reflected in a batch of poor economic readings from the world's largest economy.

The risk-off sentiment on Wednesday drove investors to the perceived safety of gold, while in European equities, health care and telecom stocks, commonly considered defensives, posted the smallest declines.

Italian tyre maker Pirelli & C dropped 6.3 per cent, ranking among the worst performers on the country's benchmark after its head shot down talks of a merger with brake maker Brembo.

REUTERS