Europe stocks down as economy set to take hit from renewed restrictions

LONDON (ICIS)–European stock markets fell sharply on Monday due to growing fears that rising coronavirus infection rates will force limitations to economic activity in coming weeks.

Most European countries are posting higher infection rates and the World Health Organization (WHO) warned last week of a “very serious situation” in the region which should be used as a “wake-up call” to contain the pandemic.

“Although these numbers reflect more comprehensive testing, it also shows alarming rates of transmission across the region,” said the WHO’s director for Europe, Hans Kluge, on 17 September.

By the time he spoke at a press conference, Europe had recorded nearly 5m positive cases and close to 230,000 deaths.

“This pandemic has taken so much from us. And this tells only part of the story. The impact on our mental health, economies, livelihoods and society has been monumental.”

SECOND WAVE OF DOWNTURN
The lockdowns in the second quarter wrecked the European economy, and double-digit GDP falls are expected in major economies like France, Italy, or Spain.

With the second wave of the pandemic hitting already, the need for restrictions to mobility could become inevitable so the virus does not spread to the point where it overwhelms the health services.

In turn, the nascent economic bounce back may be curtailed again, prompting fears that huge spikes in unemployment will also be unavoidable, causing more medium- and long-term pain for workers and state coffers alike.

That is why investors on Monday took a step back and selling activity dominated the stock markets; the European Stoxx 600, with 30 large chemicals listed companies, was down nearly 3% approaching Monday closing, with majors like BASF and Covestro down nearly 5%.

The main stock markets in Europe were also taking a hit; Germany’s DAX was down more than 3.5% by 16:00 local time on Monday, as its export-oriented economy would be sensitive to another slowdown in global trade.

Milan’s FTSE MIB was down 3.7%, and Madrid’s IBEX 35 was losing 3.4% approaching the close; the two countries’ output is set to suffer greatly this year as their key tourism industries have come to a standstill in 2020.

Paris’ CAC 40 and London’s FTSE 100 were down around 3%, as both countries’ infection rates surged over the past week and new restrictions to mobility are being imposed.

UK health officials said on Monday that swift action had to be taken immediately if the country was to avoid an exponential growth in cases that would reach 50,000 positives and 200 deaths per day by mid-October.

On Wednesday (23 September), flash purchasing managers’ index (PMI) readings for services and manufacturing for September are set to be released; it will be the first snapshot of how the eurozone’s economy is performing after the summer recess.

“Economic and social restrictions are mounting again in various places due to the virus, but it may be a bit too early to see their impact in these [PMI] numbers,” said analysts at Germany’s Deutsche Bank on Monday.

EUROPE: SAME TRAP TWICE
After Asia, Europe was the second region badly hit by the pandemic in March; the health services collapsed in regions of Italy and Spain and felt much pressure in France.

However, most countries seem to be lacking an effective response for the second wave, which has always depended on a reliable test and tracing system; something the WHO has repeatedly asked for.

Test, contract trace, and isolate is the only way to know the reality of a virus for which more than half of positives do not show symptoms and which, if left uncontrolled, can be transmitted by each carrier to other people.

“The fact that the virus is already spreading quite rapidly is a big worry. It doesn’t feel like fatalities are going to be as big as an issue as they were in the first wave but it really is hard to understand what the strategies of governments are at the moment,” added analysts at Deutsche Bank.

“They pretty much all don’t want a further wide scale lockdown but they also don’t want the virus to spread. It’s not going to be easy to solve for both and as such It’s going to be a pretty difficult few months ahead if September is seeing numbers as high as they are already.”

As a stark comparison to most European countries, the reality in South Korea, which continues to be praised as an example of how to contain the pandemic.

Health officials there consider the current moment very delicate, but citizens’ adherence to social distancing measures and compliance to guidelines is responsible for a daily tally of positives that stood at 70 on Sunday, the lowest since the second wave began.

France or Spain have been reporting highest daily cases since peak infection rates at around 10,000 cases/day in the past week.

“However, the country [South Korea] is set to strengthen social distancing rules from 28 September to 11 October, which will be designated as special quarantine period as the country celebrates Chuseok holidays from 30 September to 4 October,” said Deutsche Bank.

“So, restrictions are tightening in even successful virus fighting places.”

Front page picture source: Michael Probst/AP/Shutterstock