Europe midday: Stocks drop as some investors question rally
Stocks are trading sharply lower at the start of the week, with investors debating what some said was the divergent outlook for stocks and the economy even as governments across the Continent move to ease their lockdown measures against the pandemic.
For analysts at JP Morgan, a sustained "reflation trade" in shares was unlikely until around the end of 2020, until which time technology and defensive issues were expected to perform best.
"There will from time to time be attempts at Reflation trade, but these rotations will not be able to sustain as long as bond yields are constrained, oil is directionless, lending standards are tightened, and actual core inflation, as well as wage growth and labour market, remain weak," said analyst Mislav Matejka.
In the background, roughly half of Spaniards saw their lockdown measures ease starting from Monday, alongside a similar move in France, while in Italy the Prime Minister promised citizens that the summer would not be derailed by the crisis.
As of 1500 GMT, the German Dax was down 0.96% to 10,797.23, alongside a 1.49% fall for the French Cac-40 to 4,481.76, while the FTSE Mibtel had dipped 0.31% to 17,384.71.
Basic Resources issues were the main drag following news of a new cluster of Covid-19 cases in China which sent the Stoxx 600 sector gauge 2.38% lower.
Travel&Leisure was also in the minus column, with the Stoxx 600 sector sub-index trading down by 2.13% after the UK Prime Minister floated the idea of 14-day quarantines for travellers to the UK.
Also weighing on sentiment, on Sunday, the head of the European Commission, Ursula Von der Leyen, reportedly broached the possibility of sanctioning Germany after its constitutional court encroached on European tribunals' jurisdiction with its ruling against aspects of the European Central Bank's bond buying programmes.
Further south, the latest data out of Italy revealed the extent of the havoc from the lockdown measures implemented to block the pandemic's advance.
According to ISTAT, industrial production in the Mediterranean country collapsed by 28.4% in March month-on-month, the most since at least 1990, led by a 39.9% drop in output of capital goods.
In just one month, Italian output had thus fallen by more than over the entire 2008-09 crisis, ING analysts pointed out.