Stocks - Europe to Slump After Fed Moves Deepen Sense of Emergency

© Reuters.

By Peter Nurse

Investing.com - European stock markets are set to open sharply lower Monday, with moves by the U.S. Federal Reserve overnight to cushion the economic impact of the spread of the coronavirus having little success in calming panicking investors.

At 3:25 ET (0725 GMT), the DAX futures contract traded 971 points, or 10% lower. France's CAC 40 futures were down 262 points, or 6.4%, while the FTSE 100 futures contract in the U.K. fell 187 points, or 3.5%. Futures on the pan-eurozone index, the Euro Stoxx 50, dropped 281 points, or 5.3%.

The Federal Reserve moved aggressively on Sunday to support a global economy collapsing under the pressure of the coronavirus pandemic, cutting short-term rates to a target range of 0% to 0.25%, announcing at least $700 billion in Treasuries and mortgage-backed securities purchases in coming weeks and offering cheap dollar financing to financial institutions around the world facing stress in credit markets.

Yet these moves have done little to buoy investor confidence when weighed against the latest economic data showing the impact from the virus on the world's second-largest economy.

China's factory production plunged 13.5% in January-February from the same period a year earlier. That was the weakest reading since January 1990 when Reuters records started, and a sharp reversal of the 6.9% growth in December.

Retail sales shrank 20.5% on-year, compared with 8% growth in December, while China's jobless rate rose to 6.2% in February, compared with 5.2% in December and the highest since the official records were published.

Attention will now turn to Europe, after the Bank of Japan decided to hold steady with its interest rates at its meeting earlier Monday. European Union finance ministers set to discuss the impact of the coronavirus and measures to restart their economies. This will take place by video call later Monday rather than in person after France and Spain joined Italy in imposing lockdowns on tens of millions of people.

A focus of discussions is likely to be the European Commission plan unveiled on Friday to boost spending on sectors of the economy hit by the coronavirus and to let EU nations run bigger deficits to help cushion businesses.

Oil markets continued to be hammered by both demand and supply shocks Monday. Measures to curtail the advance of the coronavirus have severely limited demand for the product at the same time as oil’s major producers are embarking on a destructive price war.

AT 02:00 AM ET (0700 GMT), U.S. crude futures traded 4.5% lower at $30.68 a barrel and the international benchmark Brent contract fell 5.9% to $31.85.

Additionally, gold futures rose 1.9% to $1,544.95/oz, while EUR/USD traded at 1.1139, up 0.3% on the day.