By Geoffrey Smith
Investing.com -- Reality caught up with Europe’s stock markets in a big way in early trading Friday.
By 5:25 AM ET (0925 GMT), the benchmark Stoxx 600 was down 0.7% at 331.24, on track to end the week around 0.6% lower. The U.K. FTSE 100 was down 0.9% and the Dax was down 1.2%.
Fresh economic data showed the biggest monthly drop ever in U.K. retail sales (despite a heroic 32% increase in alcohol sales that says a lot about how Brits are coping with the crisis), while Germany’s Ifo index – historically the best guide to developments in Europe’s largest economy – fell to its lowest ever reading.
That came on top of disappointment at the first trial results for Gilead Sciences' (NASDAQ:GILD) experimental antiviral drug remdesivir as a treatment for Covid-19, hopes for which had been high. The chance of the pharma sector finding a way to make the virus go away overnight was never high, given the complexity and rigor of testing procedures – something that investors in Gilead in particular had lost sight of in recent days.
To make things worse, Thursday’s EU summit delivered only the bare minimum of progress on financing the recovery from a pandemic that will shrink the European economy by between 5% and 15% this year, according to European Central Bank President Christine Lagarde. Sovereign yield spreads have widened again on Friday morning, putting fresh pressure on banking stocks in Spain and Italy.
Europe’s Old Guard of national champions provided plenty of reason for pessimism with their quarterly updates. Lufthansa shares fell 7.3% after the airline warned it could run out of cash within weeks, after posting a 1.2 billion-euro operating loss in the first quarter.
Italian oil and gas giant Eni’s shares fell 2.2% after it said first-quarter profit fell 94% and forecast that output would fall this year, even before taking any mandated production cuts from ‘OPEC+’ members into account.
Commerzbank (DE:CBKG) shares fell 2.2% and Deutsche Bank (DE:DBKGn) shares fell 3.8% after Standard & Poor’s cut the rating of the former and lowered the outlook for the latter in a wholesale downgrade of Germany's banking sector.
One of the few bright spots among blue chips was Nestle (SIX:NESN), which rose 3.0% after it reported its fastest organic sales growth in five years - a sharp contrast to stagnation at rival Unilever (LON:ULVR). The owner of Nespresso and KitKat is now back within 2% of its pre-crisis high.
Another winner was Ocado (LON:OCDO), the maker of logistics software for supermarkets. It rose 1.1% to within 1% of a new all-time high after the U.K. retail sales data confirmed an acceleration of the trend toward online shopping.
Finally, Lysol maker Reckitt Benckiser (LON:RB) got a 1% bump after President Donald Trump touted the benefits of disinfectant in his daily briefing on Thursday. His speculation that it could be injected into humans to help treat the virus met, however, with widespread skepticism from scientists.