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StockBeat: Markets Adjust to a Deeper, Longer Covid-19 Dip

By Geoffrey Smith -- Europe’s stock markets have lurched lower on Monday, forced to adjust their horizons after President Donald Trump – who embodied what gung ho spirit there was among global leaders with regard to the coronavirus – was forced to change his position and abandon his hope of getting the U.S. economy up and running again by Easter.

In Europe, the spread of the Covid-19 pandemic had already made any such thinking fantasy. The U.K., which initially thought it could – in Trump’s words - ‘ride this sucker’, fell into line with the rest of Europe last week in enforcing a stringent shutdown of non-essential business. The U.K.’s deputy chief medical officer said at the weekend that restrictions could stay in place for six months.

German Chancellor Angela Merkel said in her regular podcast on Sunday that there was no sign of any improvement that would justify lifting the shutdown in Europe’s biggest economy yet. Germany is halfway through a two-week lockdown that now seems certain to be extended.

"The longer the crisis goes on, the less the economy will look like it does today," Paul Donovan, chief economist with UBS Global Wealth Management, warned in a morning note.

In short, this ‘sucker’ is going to cause a longer, and probably deeper, dip in economic activity than was assumed even at the end of last week. Hence the fresh rout in oil prices this morning – Brent has fallen 4.9% to a 17-year low of $24.16 a barrel.

Against this background, more and more companies and financial institutions are taking more and more extreme measures to conserve cash. EasyJet said it will ground its entire fleet on Monday and apply for an assistance scheme under which the government will pay up to 80% of staff wages (up to a certain threshold). EasyJet shares slumped another 5.4% and dragged the rest of the U.K.-exposed travel sector down with it: IAG (LON:ICAG) shares were down 5.4%, Dart Group shares fell 7.1%, while Ryanair (LON:RYA) shares fell 6.4% and On the Beach shares fell 4.4%.

Banks, too, are suspending their dividends en masse after a ‘recommendation’ from the European Central Bank on Friday to stop payouts to shareholders until October. Unicredit (MI:CRDI), ING and ABN AMRO (AS:ABNd), among others, have all dutifully complied. UBS Group (NYSE:UBS) – which isn’t regulated by the ECB – has however, stuck to its guns and said it will pay out its 2019 dividend in full.

Unicredit shares and ING Group (AS:INGA) shares were both down 5.3%, while ABN AMRO shares were down 7.0% after the bank threw in a warning of a hefty loss for good measure. Barclays (LON:BARC) shares and Lloyds (LON:LLOY) shares also underperformed amid expectations of similar measures, and amid broader pressure from the U.K.’s sovereign debt downgrade from Fitch Ratings on Friday.

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