Equity markets in Europe have gone from bad to worse to awful as the selling pressure has gained momentum all week.
What started out as a tumble on Monday has turned has turned into panic selling as traders are terrified about the possibility of Europe undergoing an economic slowdown or a possible recession because of the coronavirus. The fear of the unknown is causing traders to lose their nerve and just cut and run as far as stocks are concerned.
The airline sector has endured a brutal sell-off this week as dealers took the view that travel would be greatly diminished on account of the coronavirus taking hold in Europe. It has been non-stop for the aviation industry as short-sellers stepped up their activity. Dealers’ fears were confirmed today when, BA’s owner International Consolidated Airlines Group, warned that demand will be negatively impacted, and that it will be hard to make a profit projection. Finn Air warned on profits on account of the health emergency, while easyJet said that flights will be cancelled.
Rolls-Royce shares have popped today after the company confirmed a 25% jump in core underlying profit to £810 million. The group has been undergoing a restructuring programme and is paying off as the firm registered a run-rate cost savings level of £269 million. The group issued the standard cautionary comment about the coronavirus but it remains optimistic as it predicts at least £1 billion of free cash flow by 2020.
The London Stock Exchange are confident they will be get approval for their proposed merger with Refinitiv, even though the initial investigation process seems to be taking longer than usual. That can be a sign there will be tough scrutiny from the regulator. The LSE feels the deal should go ahead in the second-half. The company posted respectable full-year numbers as adjusted operating profit and revenue increased by 14% and 8% respectively.
Whitbread have acquired 19 hotels in Germany as their expansion continues, and the move will take their holding to 52 sites in the country. The travel sector in Europe has been hit really hard this week as dealers are fearful that perspective holiday makers will curtail their plans. The news today that Germany has put 1,000 people in quarantine is terrible timing for the London-listed group.
The bears are firmly in control on Wall Street as the Dow Jones as well as the S&P 500 are down more than 3%. There is intense speculation the Fed will have to cut rates in a bid to assist the economy, and that appears to be doing more harm than good – if the Fed need to intervene, how bad is the situation.
Amid the madness of the markets the US economy continues to doing reasonably well. The core PCE rate held steady at 1.6%, but economists were expecting 1.7%. Personal income and consumption were 0.6% and 0.2% respectively, the former topped forecasts, while the latter marginally missed estimates. The Chicago PMI reading was 49 –a six month high, and the final reading of the Michigan consumer sentiment reading showed the level improved to 101.
Beyond Meat shares have been roasted today on the back of the quarterly update. In the third-quarter the group posted its first-quarterly profit, but the group swung back into the red in the fourth-quarter, and that clobbered the stock price. In the three month period the group registered a loss per share of 1 cent. Net sales surged by in excess of 200%, but traders were fixated on the loss.
GBP/USD has been hurt by the commentary from Mark Carney, the Bank of England chief, who cautioned the UK economy could be hurt by the health fears. Dealers jumped on the remarks even though it is difficult to estimate the scale of the adverse impact. Also, traders are worried about the possibility of a no-deal scenario after the transition period.
The US dollar is slightly lower today but that hasn’t stopped EUR/USD from falling. Given the fragile state of the Italian and German economies in advance of the health emergency, dealers are worried the countries will fall into a recession because of the potential fall-out form the health crisis.
Gold is lower on the day despite the bloodbath in stocks not to mention the fall in the US dollar too. When equities undergo a huge fall, traders normally funnel their cash into assets that are perceived to be lower risk – such as gold. The metal normally benefits from the decline in the greenback too as the commodity is listed in US dollars. There is chatter that gold is lower as traders are liquidating their long gold positions to fund their equity positions.
Brent crude as well as WTI dropped to a levels seen since late 2018 as the panic selling has hammered the energy markets. The chatter of the global economy taking a hammering because of the health crisis has led dealers to believe that oil’s demand will tumble. The commodity is often a good barometer for the health of the world economy, hence why it is sharply lower today.
Palladium hit an all-time high yesterday as the industrial metal shrugged off the panic in other markets, but the fear factor caught up with it today. The asset is down in excess of 10% – which is huge for this particular market.