LONDON: European stocks slumped Monday, wiping out earlier gains, as the European Union’s disease control agency lifted its risk level for the novel coronavirus from moderate to high.
Having jumped around 2.0 percent at the start, Frankfurt was down 2.2 percent in early afternoon deals and Paris tumbled 2.1 percent. Milan was down 3.8 percent and London shed 1.3 percent.
The EU’s disease control agency “has announced today that the risk level has risen from moderate to high for people in the European Union. In other words, the virus continues to spread”, EU Commission president Ursula von der Leyen said Monday.
Analysts added that markets had quickly doubted the ability of central banks to intervene to prop up the global economy.
There is a “realisation that there could be a limited amount that the central banks could do in terms of stimulus”, said Richard Hunter, head of markets at Interactive Investor.
Hunter pointed also to lower US futures markets ahead of the open on Wall Street.
After last week’s coronavirus-fuelled plunge for world equities, European stocks surged early Monday as central banks including the Federal Reserve flagged support measures such as interest rate cuts to prop up the ailing economy.
Markets initially rallied “on a mixture of bargain hunting and, perhaps more importantly, on hopes of major stimulus from central banks”, said Russ Mould, investment director at AJ Bell.
“Markets typically rise on interest rate cuts.”
Investors are betting on a Fed rate cut at its March 17-18 policy meeting after governor Jerome Powell made a rare unscheduled statement on the outbreak, which he said “poses evolving risks to economic activity”.
He said the central bank was “closely monitoring developments and their implications for the economic outlook”, adding: “We will use our tools and act as appropriate to support the economy.”
The Bank of England said in a statement Monday that it was “working closely” with “international partners to ensure all necessary steps are taken to protect financial and monetary stability”.
London’s FTSE had slumped 11.1 percent last week as the coronavirus spread outside China.
At the height of the global financial crisis in October 2008, the FTSE tumbled 21 percent in just one week.
Analysts on Monday warned of further turmoil on trading floors as governments struggle to contain the disease, which has now killed more than 3,000 people and infected almost 90,000.
“Markets face significant uncertainty in the short term and remain at high risk of more downside given the unknowns around COVID-19,” said Shane Oliver, a global investment strategist at AMP Capital Investors.
Traders remain worried the disease “will disrupt economic activity more deeply and for longer than had been expected a week or so ago”.
In Asian stock market trading Monday, Shanghai led gainers, rising 3.2 percent after dropping more than five percent last week, while Hong Kong closed up 0.6 percent after a loss of around four percent. Tokyo won 1.0 percent Monday.
The gains came on hopes for government stimulus after an index of Chinese manufacturing activity fell to its lowest level on record in February as factories around the country were shuttered.
Sydney’s stock market however fell 0.8 percent after Australia recorded its first death from the virus.
In foreign exchange, the pound slid 1.2 percent against the euro as European and British officials prepared to kick off trade talks after Britain’s exit from the EU.(AFP/APP)