People wear protective masks as they shop at an outside market in the Neukoelln district during the second wave of the coronavirus pandemic on October 27, 2020 in Berlin, Germany.
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European stocks fell sharply on Wednesday, the third straight drop and already the worst week since June, as investors watched France and Germany for potentially more restrictions as cases climbed on the continent.
The Stoxx Europe 600 index SXXP, -2.58% fell 2.4%, after closing nearly 1% lower on Tuesday. The index has lost more than 5% in just three days of trade. The German DAX DAX, -3.66% dropped 3.7%, the French CAC 40 PX1, -3.13% tumbled 3.3%, and the FTSE 100 UKX, -2.19% fell 2%.
The gloom filtered over to Wall Street, where Dow futures YM00, -1.60% dropped by over 500 points. Rising COVID-19 cases in the U.S. and largely abandoned hopes for a pre-election stimulus plan hit investors at the start of the week. The U.S. presidential election is just under a week away.
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French President Emmanuel Macron is expected to address the nation in a televised address later on Wednesday and could announce fresh measures, The Wall Street Journal and other media outlets reported. France is among Europe’s worst-hit nations as a second wave of the virus sweeps across the continent.
Those moves could be paired with fresh restrictions on movement from Germany, where Chancellor Angela Merkel was due to meet with regional governments as cases climb in that country, tabloid newspaper Bild reported. Germany is one country that had fared best in the first wave.
In Italy, the site of protests in recent days, the government is reportedly preparing a relief package for businesses affected by new containment moves. Several governments have had some measures in places for weeks, but are finding they are not as effective.
“While it’s unlikely the continent will lock down, with economic juggernauts France and Germany struggling to contain the virus, it is hard to envision anything but both economies, and the eurozone in general, struggling into 2021 or until a vaccine comes available,” said Stephen Innes, chief global markets strategist at Axi, in a note to clients.
While the hospitality industry will take a hit, the “German manufacturing machine is likely to stay open through the winter,” said Jordan Rochester, foreign exchange analyst at Nomura, to clients in a note.
“We also understand COVID-19 more, have a much better data set to monitor the trends with and the ‘fear of the unknown’ is much lesser than before when we barely had any COVID-19 testing or enough history to understand the health risk,” Rochester said.
The European Central Bank could find itself under increasing pressure as it meets on Thursday, though economists do not expect any stimulus moves until the December meeting.
Technology shares in Europe were under pressure where Microsoft MSFT, -3.52% shares fell as earnings and sales forecasts topped forecasts, but its outlook disappointed. Shares of chipmaker Infineon IFX, -5.59% slid more than 6% and German business software group SAP, -3.24% SAP, -4.34% fell 4%. SAP shares have lost 25% of their value this week, after the company cut its outlook on Monday.
Banks led the way south in Europe, with Swiss lender UBS UBS, -3.26% dropping 4% and France’s BNP Paribas BNP, -3.98% dropping over 5%. Shares of Deutsche Bank DB, +0.32% were down slightly, after the German lender posted forecast-beating results that were lifted by a strong performance for its investment bank.
“A good set of results but an accompanying outlook statement that suggests little change to consensus EPS (earnings per share),” said a team of Citi analysts led by Andrew Coombs. “We remain Sellers as we believe the IB (investment bank) industry backdrop is unlikely to be as supportive for Deutsche Bank in 2021.”
Shares of Puma PUM, -2.76% fell 3.3%, after the German sports retailing company reported higher third-quarter profits and sales, but said it can’t give guidance for the year due to too much uncertainty still over the virus’ fallout.
French automobile maker Peugeot UG, -2.34% posted a third-quarter revenue fall, and said it expects the European car market to drop 25% in 2020. Shares dropped 3.7%.
Also in France, Carrefour CA, +2.60% said like-for-like sales grew in the third quarter, and the supermarket group backed the targets set as part of its Carrefour 2022 plan. But shares dropped 2.7% .
Shares of Sopra Steria SOP, -12.91% slid 13%, making the French consulting and software development company the worst-performer on the Stoxx Europe 600 after it reported a third-quarter revenue drop, mostly due to weak business activity in the aeronautics sector.
Weak oil prices weighed on major energy companies, with shares of BP BP, -1.93% off 2.% and Total TOT, -4.31% down 4%. U.S. crude CL.1, -5.25% and Brent prices BRN00, -4.42% fell 5% and 4% respectively after the American Petroleum Institute reported late on Tuesday that U.S. crude supplies climbed by nearly 4.6 million barrels for the week ended Oct. 23, according to sources.
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