(Reuters) – European shares closed firmly in the red on Wednesday, ending a five-day rally as the first batch of earnings reports underlined the business damage from the coronavirus pandemic, while energy stocks sank on worries of a plunge in oil demand.
Declines for Total SA <TOTF.PA>, Royal Dutch Shell Plc <RDSa.L> and BP Plc <BP.L> sent the European energy index <.SXEP> to its lowest point this month as oil prices were hit by forecasts of global demand crumbling to its worst levels in a quarter of a century.
The pan-European STOXX 600 index <.STOXX> slipped 3.3%, after having risen almost 8% since April 6 on early signs the health crisis was ebbing and on hopes that sweeping lockdown measures would soon be lifted.
The benchmark index has recovered about 22% since hitting an eight-year low in March, but is still down almost 26% from a record high hit in mid-February, and analysts warned an uptick in coronavirus cases could spark another sell-off.
“Much of the ground that European equities have made since mid-March was fuelled by rescue schemes and, more recently, the levelling-off of the rate of infections, but traders are facing up to the prospect of a painful economic downturn,” said David Madden, market analyst at CMC Markets in London.
U.S. majors JPMorgan Chase & Co <JPM.N> and Johnson and Johnson <JNJ.N> kicked off the first-quarter earnings season on Tuesday with glum forecasts for 2020 as the pandemic crushed business activity and erased liquidity.
ASML Holding NV <ASML.AS>, a key European supplier to chipmakers such as Samsung and Intel, fell 3.2% after reporting worse-than-expected earnings on Wednesday.
Dutch navigation and digital mapping company TomTom <TOM2.AS> shed 4.9% after saying it expected negative free cash flow this year and lower revenue from its automotive and consumer businesses.
Overall, analysts expect earnings for STOXX 600 firms to slide 22% in the first quarter and 34.2% in the second, deepening a corporate recession even as some economies consider lifting strict stay-at-home orders.
“It is too early for governments to re-open their economies and if they do so, it must be a slow procedure in order to avoid a new flare up,” said Charalambos Pissouros, a market analyst at JFD Group.
French shares <.FCHI> fell 3.8% as France became the fourth country to report more than 15,000 deaths due to the coronavirus after Italy, Spain and the United States.
Britain’s domestically focused mid-cap index <.FTMC> slumped another 4.6% on signs the country was heading for a longer lockdown and forecasts the economy could be facing its deepest recession in 300 years.
(Reporting by Shreyashi Sanyal and Sagarika Jaisinghani in Bengaluru; Editing by Arun Koyyur and Pravin Char)