Europe: Shares run red on Federal Reserve's reality check, second-wave virus fears

[BENGALURU] European shares suffered their worst day in more than 11 weeks on Thursday after a sobering economic outlook from the US Federal Reserve and worries of a second wave of Covid-19 cases.

The pan-European Stoxx 600 fell 4.1 per cent, its fourth straight daily fall, with automobile stocks leading losses.

Fiat Chrysler fell 7.7 per cent and Peugeot maker PSA 10 per cent after a report that the carmakers will face a lengthy EU antitrust probe over their planned US$50 billion merger.

Renault fell 14.1 per cent after its chairman said nationalisation was not being contemplated. The carmaker recently obtained a 5 billion euro (S$7.93 billion) loan, backed by the French state.

The Stoxx 600 came further off three-month highs after the Fed indicated that it would take more than just the easing of coronavirus-related curbs for a full-fledged economic recovery, undermining optimism that has buoying markets recently.

The central bank also forecast a 6.5 per cent contraction in the world's largest economy for 2020.

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The possibility of a fresh rise in US cases also upset hopes for a smooth easing of coronavirus curbs, with a Reuters analysis showing confirmed infections had risen slightly after five weeks of declines, partly due to more testing.

"Government, companies and people would be better prepared for second wave than for the first one," said Roland Kaloyan, European equity strategist, Societe Generale.

"But the problem is there is a limit to the governments injecting money. They're using all the resources now for a V-shaped recovery."

Travel and leisure stocks were pressured by the prospect of new infections, with British cinema operator Cineworld the biggest loser on the Stoxx 600, plummeting 17.1 per cent.

Lufthansa slumped 9.1 per cent after admitting that the positions of up to 26,000 employees are surplus to requirements, suggesting many more jobs will be cut at the German carrier.

European stocks also extended losses late in the session after Wall Street indexes opened substantially weaker, with the S&P 500 falling 3 per cent.

Consumer goods giant Unilever's UK-listed shares fell nearly 1 per cent after it proposed to combine its Dutch and British legal entities in a single holding company based in Britain.

European healthcare stocks declined the least, indicating that defensive plays were coming back into the market.

REUTERS