Europe close: Shares hammered as investors mull risk of slower recovery

Stocks were pummeled after the US Federal Reserve forecast a prolonged recovery the night before and on the back of rising Covid-19 case numbers in the States even as some investors fretted about a potential second wave in the pandemic.

Linked to the latter, it was reported that the tally of infections in the US had climbed past the 2.0m person mark.

"What was particularly notable was [Fed chief Jerome Powell's] comments on the jobs market, inequality and financial markets," said Michael Hewson, chief market analyst at CMC Markets UK.

"He said that inequality was likely to continue for the next four decades, and that millions of people could well be out of work for some time, a tone that appears to have reverberated into today’s session in Asia."

IG's Chris Beauchamp on the other hand believed that was weighing on investor sentiment was the lack of any announcements of new monetary policy measures.

By the end of trading, the benchmark Stoxx 600 had lost 4.10% to 353.07, alongside a 4.47% fall on the German Dax to 11,970.29 while the FTSE Mibtel slid 4.81% to 18,806.86.

Banks were the worst performing segment of the market after the Fed also revealed that most policymakers expect interest rates to remain low throughout 2022.

The Stoxx 600 sub-index for the sector dropped by 6.9%, alongside a 5.8% fall for Travel&Leisure names and a 6.19% retreat in Oil&Gas stocks.

Among the biggest losers at the individual level due to the risk of a second wave were IAG and Lufthansa, albeit following sizeable rallies in the shares of both companies recently.

Telecom Italia shares were also lower, following a downgrade out of JP Morgan from 'overweight' to 'neutral'.

However, the investment bank's analysts shied away from a downgrade to 'underweight' given the possibility that the sale of a part of its network to private equity outfit KKR was possible in the next two months.

JP Morgan also cited the shares' attractions as a 'value' play and the likely substantial benefit to its operating profits from the Italian government´s plans to promote connectivity.

On the economic side of things, INSEE reported a 502,400 drop in the number of French non-farm payrolls during the first quarter of 2020.

On that note, the country's finance minister, Bruno Le Maire, argued in a TV interview in favour of a quicker pace of reopening in the economy.

In Italy meanwhile, ISTAT reported that industrial production fell at a 19.1% month-on-month pace in April.