European investors experienced a torrid March as the coronavirus spread and intensified across the region. Major equity markets posted double-digit losses over the month and the quarter as lockdowns were imposed and toughened.
- Italy and Spain were particularly hard-hit by the virus
- The ECB unveiled its “Pandemic Emergency Purchase Programme’ (PEPP)
- Individual European governments launched economic support packages
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European investors experienced a torrid March as the coronavirus spread and intensified across the region. Major equity markets posted double-digit losses over the month and the quarter as lockdowns were imposed and toughened. Italy and Spain were particularly hard-hit, according to the World Health Organisation (WHO), which reported 101,739 cases of Covid-19 and 11,591 deaths in Italy, and 85,195 cases and 7,340 deaths by the end of March.
“Extraordinary times require extraordinary action” (IMF Managing Director Christine Lagarde)
In Germany, the Dax Index fell by 16.4% over the month and by 25% since the start of the year. France’s benchmark CAC 40 Index fell by 17.2% during March and by 26.5% during the first quarter, and Italy’s FTSE MIB Index posted a monthly decline of 22.4% and a quarterly drop of 27.5%.
President of the European Central Bank (ECB) Christine Lagarde described the crisis as: “something that is different from the great financial crisis … We analyse it as a crisis that is fuelled by a supply shock, followed by a demand shock, and with great financial uncertainty”. She urged European leaders to work together to tackle the crisis. Alongside measures taken at federal level, individual European governments launched packages designed to shore up their economies and businesses. In the UK, the Financial Conduct Authority (FCA) temporarily banned short-selling of shares in a long list of Italian and Spanish firms, following similar action by the European Securities & Markets Authority (ESMA).
Although ECB officials did not cut its key interest rate any further, they unveiled a new “Pandemic Emergency Purchase Programme” (PEPP), a package of measures worth €750 billion that is designed to alleviate the impact of the coronavirus. President Lagarde subsequently tweeted: “Extraordinary times require extraordinary action. There are no limits to our commitment to the euro. We are determined to use the full potential of our tools, within our mandate”. According to credit ratings agency Fitch, the PEPP reduces financing risk for the eurozone’s sovereigns and will help to facilitate their fiscal responses to the coronavirus crisis. Fitch believes that the programme’s size and flexibility will help to ease potential refinancing risks for the eurozone sovereigns that have been worst affected by the coronavirus. It will also enable the ECB to absorb bonds that will be issued to finance fiscal easing in response to the economic contraction by the lockdowns.
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