Europe: Shares tumble on oil crash, pandemic worries

[BENGALURU] European stocks fell on Tuesday as the double whammy from a historic plunge in US crude prices and lacklustre quarterly earnings reports spooked investors already worried about the damage to the global economy from the coronavirus pandemic.

The pan-European Stoxx 600 index broke a three-session winning streak to end 3.4 per cent lower.

Basic materials stocks were the biggest decliners, losing almost 6 per cent. The world's largest listed miner BHP Group slid after warning of a sharp drop in global steel production excluding China due to the Covid-19 pandemic.

All the major European country indexes slipped, a day after US crude futures plummeted to below zero for the first time in history with rapidly filling storage capacity causing traders to flee contracts that would deliver oil barrels to them in May.

The West Texas Intermediate contract recovered to trade above US$1 on Tuesday but its collapse spilled into June futures contracts as investors fretted over a deep global recession with the near halt in business activity crushing both supply chains and oil demand.

BP, Royal Dutch Shell and Total SA lost between 2.5 per cent and 3.8 per cent, taking the energy index 4.3 per cent lower.

"Dividends for oil companies are in big trouble," said David Trainer, chief executive officer of investment research firm New Constructs.

"With such low prices, they have little to no revenues. As oil and gas firms cut capital spending and delay or close down projects, those with already low profitability are at greater risk of cutting dividends to preserve resources."

The Stoxx 600 had recovered about 25 per cent from a March trough as risk appetite picked up on a raft of global stimulus, but investors have turned cautious again with economic data underlining the havoc wreaked by sweeping lockdown measures.

The ZEW survey on German economic sentiment did however surprise with a rise but investors took little solace from the data and Germany's DAX led losses in the region, down 4 per cent.

"Too good and too early to be true," said Carsten Brzeski, global head of macro at ING Economics, about the data. It suggests there will be light at the end of tunnel but just not yet, he said.

Europe's most valuable tech company SAP was among the biggest drags on the benchmark Stoxx 600 after the company abruptly ended a six-month experiment in dual leadership due to the pandemic.

The first-quarter earnings season also kicked into high gear with a batch of multinational firms scrapping dividends and withdrawing financial forecasts to deal with the fallout from the pandemic.

Finland's Wartsila's first quarter profit dropped 45 per cent, while Primark owner Associated British Foods slipped after suspending its interim dividend.

But not all earnings were bad. Topping the pan-region index was online payments firm Adyen after it reported growth in revenue and core earnings for the first quarter.

REUTERS