Share prices in Europe generally strengthened during March, despite concerns over the slow rollout of the coronavirus vaccine and worries about a third wave of Covid-19 infections sweeping across the region.
- Large sections of mainland Europe were put into lockdown measures
- The ECB said it could opt to increase asset purchases
- The Dax Index reached a new high
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Share prices in Europe generally strengthened during March, despite concerns over the slow rollout of the coronavirus vaccine and worries about a third wave of Covid-19 infections sweeping across the region. Surging infection rates in France, Germany, Italy, and Poland triggered a series of new social and economic shutdown measures designed to curb the spread of the virus. In France, sentiment was buoyed by signs of improving consumer confidence, which reached its highest level since December 2020. At the very end of March, however, President Emmanuel Macron announced sweeping lockdown measures that will encompass the whole of France.
“Preserving favourable financing conditions over the pandemic period remains essential” (Christine Lagarde)
Although fresh lockdowns raised questions over the outlook for Europe’s economic recovery, investors appeared to shrug off these fears, and the Dax Index reached a new high towards the end of the month, driven up by strong demand for stocks in the automotive and banking sectors. Although there had been some concerns that the default of US hedge fund Archegos could lead to heavy losses in Europe, these worries appeared to have eased by the end of the month. Over March as a whole, the Dax Index rose by 8.9%, while the CAC 40 Index climbed by 6.4%.
The European Central Bank (ECB) indicated that it could increase the total amount of asset purchases, if necessary, in order to avoid any tightening in financing conditions that could undermine economic recovery and sentiment. ECB President Christine Lagarde emphasised: “Preserving favourable financing conditions over the pandemic period remains essential”. Looking ahead, the ECB expects a “firm rebound” in economic activity this year, underpinned by progress in vaccination programmes and the gradual relaxation of lockdown measures. The eurozone’s economy is predicted to expand by 4% this year and 4.1% next year, easing to growth of 2.1% in 2023.
Optimism at Germany’s central bank showed signs of weakening as the Bundesbank took a more pessimistic tone, warning of a steep contraction in Germany’s economic output for the first quarter, exacerbated by a sharp decline in activity in services sectors that have been hit by social distancing measures and shutdowns. On a brighter note, despite a fall in industrial production during January, orders rose and exports continued to grow, although shipments to a post-Brexit UK fell by almost a quarter during the month.
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