European shares edge upwards even as businesses hammered

European shares opened slightly higher on Tuesday, as did emerging markets and FX. But businesses are crumbling.

Leverkusen - reuters
Shopping centres, like this one in Leverkusen, Germany, have largely been closed across Europe as business activity crumbles amid citizen lockdowns [Thilo Schmuelgen/Reuters]

European shares attempted another rebound on Tuesday after slumping in the previous session, as a fresh round of monetary and fiscal stimulus offered some relief – even as the coronavirus pandemic spreads rapidly across the globe.

The pan-European STOXX 600 index was up three percent at 0802 GMT, but still set for its worst month since 1987 as the health crisis threatened to crimp global growth, with some analysts seeing a 24 percent fall in European GDP in the second quarter.

Travel and leisure stocks, which have posted some of the heaviest losses this month, were up 2.6 percent in early trading.

Miners, insurers and oil and gas stocks were the biggest gainers among the major European subsectors, rising between five and six percent.

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France’s Biomerieux jumped 30 percent after the healthcare company won approval from the US Food and Drug Administration for its product aimed at testing for coronavirus.

Emerging markets

Most emerging market stocks and currencies bounced on Tuesday, lifted by the US Federal Reserve’s extraordinary measures to support the economy and ease global dollar funding strains amid the coronavirus pandemic, which is paralysing economic activity.

The Fed announced unlimited quantitative easing, saying it would back purchases of corporate bonds, roll out a programme to get credit to small and medium-sized businesses, and expand asset purchases to stabilise financial markets.

Asian shares also rallied on Tuesday, as did US stocks futures.

MSCI’s index of emerging market stocks jumped 4.3 percent looking to make up for Monday’s 5.6 percent drain. Its currency counterpart firmed 0.6 percent, to lift slightly off three-year lows.

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“[The Fed’s move] can do plenty to mitigate the jumps seen in both market risk and liquidity risk premiums for credit markets,” said Wei Liang Chang, macro strategist for FX and credit at DBS Bank.

“The real value is in the Fed’s signal that it is open to doing more for corporate bond issuers.”

South Korean assets were among the biggest gainers after the country doubled its economic package to 100 trillion won ($80bn).

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The Kospi stock index surged 8.6 percent in its biggest intraday gain since late 2008. The won currency looked to mark its best session in four years, firming two percent against the dollar which eased after the Fed’s announcements.

Indian shares recovered ground after posting their worst session on record on Monday, and the rupee rebounded from record lows. Stocks in Hong Kong and Taiwan added 4.5 percent.

Elsewhere, Russia’s rouble increased one percent as oil prices rose, while the South African rand firmed 0.8 percent. Stocks in Moscow and Johannesburg rose five percent and 4.2 percent respectively.

Turkey’s lira firmed for the first time in five days, up 0.7 percent, while stocks jumped almost four percent, on track for their best day in almost 11 weeks.

But keeping optimism at bay, many countries within the emerging market space reported rising numbers of new COVID-19 cases, including the world’s second-most populous country, India.

Central banks and governments continue to ramp up efforts to rein in the numbers and support markets and economies. The Philippines’ central bank on Tuesday slashed its key interest rate by 200 basis points.

European business hammered

Eurozone business activity has crumbled in March as the coronavirus pandemic sweeping across Europe and the world wreaks havoc, and shops, restaurants and offices pull down the shutters, a survey showed on Tuesday.

Leverkusen - reuters
Downtown Lisbon, like many European cities, has become a ghost town with businesses shuttered and would-be shoppers confined to their homes [File photo/Rafael Marchante/Reuters]

 

IHS Markit’s Eurozone Composite Flash Purchasing Managers’ Index (PMI), seen as a good gauge of economic health, plummeted to a record low of 31.4 this month from February’s 51.6, by far its biggest one-month fall since the survey began in mid-1998.

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That reading was below all forecasts in a Reuters poll which had a median prediction of 38.8.

“Business activity across the eurozone collapsed in March to an extent far exceeding that seen even at the height of the global financial crisis,” said Chris Williamson, chief business economist at IHS Markit.

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“Steep downturns were seen in France, Germany and across the rest of the euro area as governments took increasingly tough measures to contain the spread of the coronavirus.”

All subindexes in the survey came in under the 50 mark, which separates growth from contraction, with new business hit particularly hard – that index sank to a record low of 29.5 from 51.2.

“The March PMI is indicative of GDP slumping at a quarterly rate of around two percent, and clearly there’s scope for the downturn to intensify further,” Williamson said.

Activity in the bloc’s dominant services industry contracted at the steepest rate in the survey’s more than two-decade history. Its PMI nose-dived to 28.4 from 52.6, below all forecasts in the Reuters poll.

Firms turned to cutting prices for the first time in more than three years and optimism tumbled to a surveyed low. The business expectations index stood at 34.8 compared with last month’s 61.3.

Factories were less badly impacted, with the manufacturing PMI dropping to 44.8 from 49.2 – its lowest since July 2012 but above expectations in the Reuters poll for 39.0.

An index measuring output which feeds in to the composite PMI dropped to 39.5 from 48.7, a level not seen since April 2009.

Factories across the single-currency bloc cut staff, reduced raw material stocks and completed backlogs of work as demand tanked. The new orders index was 38.2 compared with 49.4 last month, a near 11-year low.

Source: News Agencies

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