Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

StockBeat: Europe Capitulates to Virus as Airlines, BASF Warn of Hits

Published 02/28/2020, 05:13 AM
Updated 02/28/2020, 05:17 AM
© Reuters.

© Reuters.

By Geoffrey Smith

Investing.com -- Europe’s stock markets were in full-on capitulation mode in early trading on Friday amid growing fears that the coronavirus outbreak will develop into a full-blown pandemic that does lasting damage to the world economy.

By 5:15 AM ET (1015 GMT), the Euro Stoxx 600 index was down 14.9 points or 3.8% at 374.58 on course for its worst week since the financial crisis in 2008/9. In the last nine trading sessions since it peaked at 433.9, the Stoxx 600 has fallen nearly 14%.

The German DAX was down 4.3% and the U.K. FTSE 100 was down 3.7%, both following Wall Street’s extraordinary losses on Thursday but both also weighed down by warnings from index heavyweights about the impact of the virus on this year’s business.

International Airlines Group (LON:ICAG), the owner of British Airways and Iberia, warned that it would cut capacity by as much as 2% this year in response to falling demand, while EasyJet warned that it faced a “significant softening of demand” on routes in and out of northern Italy, as well as other European countries.

The news follows a spate of announcements from companies such as JPMorgan Chase (NYSE:JPM), L’Oreal (PA:OREP) and Nestle (SIX:NESN) all restricting business travel by staff.

IAG (LON:ICAG) stock fell 8.0%, while EasyJet stock fell sharply before recovering to be flat on the day. They’re on course for a weekly loss of 23% and 29%, respectively – although neither has been as hard hit as U.K. tour group Dart Group (LON:DTG), whose Jet2 customers have figured prominently in the lockdown of tourists in Tenerife. It’s down 40% this week.

In Germany, chemicals giant BASF (DE:BASFN), an important bellwether in that it sells a huge range of products to a diverse range of business sectors, warned that: “For 2020, we expect global economic uncertainty to be very high and that growth will be significantly depressed by the drop in demand and production outages in connection with the coronavirus outbreak.”

It added that it didn’t expect to earn its 9% cost of capital this year as a result.

“Basically, what matters now is whether consumer behavior is significantly affected,” said Paul Donovan, chief economist with UBS Wealth Management, in a morning note. “We know that supply chains are disrupted, we know that Chinese domestic demand has been affected. What matters is whether U.S. and European consumers change demand as a result of the fear of the virus. The virus itself is not a concern, economically.”

Donovan noted that the virus is hitting the world economy at a time when the trade war between China and the U.S. had essentially neutered business investment as a source of growth, leaving private and government consumption as the only factors supporting expansion.

However, he observed that forecasts habitually underestimate “human resilience”, something that causes economic activity to rebound faster and more vigorously than expected.

Latest comments

“... fears that the coronavirus outbreak will develop into a full-blown pandemic that does lasting damage to the world economy.” We are already there Chico!
I expected VIX to get down from today. But it seems to be close to the level of financial crisis. Somebody save my stock!
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.