May 6, 2020 / 7:41 AM / 2 months ago

European shares hobbled by record recession forecast, ECB concerns

(Reuters) - European shares ended slightly lower on Wednesday as a chilling GDP forecast undercut optimism about a swift economic recovery, even as several countries began easing coronavirus-related curbs.

FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, May 5, 2020. REUTERS/Staff

The pan-European STOXX 600 index ended down 0.4%, having stuck to a tight range as the European Commission forecast the euro zone economy would contract by a record 7.7% this year.

Adding to pressure were concerns over future asset purchase programmes by the European Central Bank after a ruling by Germany’s highest court on Tuesday gave the ECB three months to justify its stimulus schemes.

“We suspect that trust in the ECB’s ability to forcefully fight the current crisis and to keep euro zone sovereign debt sustainable over the coming years might have suffered,” Reinhard Cluse, chief European economist at UBS wrote in a note.

“We also see a risk that the ECB’s Pandemic Emergency Purchase Programme (PEPP) might be challenged in the German Constitutional Court.”

Energy stocks were the worst performers of the day, ending 3% lower after marking their biggest one-day gain in more than a month on Tuesday.

Swedish oil firm Lundin Energy led sector losses after Norwegian rival Equinor offered to sell its 4.88% stake in the firm.

Norwegian oil firm Aker BP also dropped after announcing a cut in its quarterly dividend payments by two-thirds due to the pandemic and the plunge in crude prices.

While European shares have climbed from lows touched in March, the STOXX 600 has been largely rangebound over the past three weeks as investors look for tangible signs of the coronavirus pandemic slowing down.

The threat of a renewed Sino-U.S. trade spat has also weighed on sentiment.

Travel and leisure stocks fell 1.8%, while bank stocks shed more than 1.6%.

UK-listed AstraZeneca jumped 3.8% after the U.S. FDA approved its diabetes drug as a treatment for heart failure.

The broader healthcare sector gained on the back of better-than-expected quarterly results from Denmark’s Novo Nordisk and German dialysis specialist Fresenius Medical Care.

Still, earnings for companies listed on the STOXX 600 index are expected to drop by 30.6% in the first quarter and a sharper 44.9% in the second quarter, according to Refinitiv data.

In further signs of how the pandemic is causing economic damage, data showed orders for German industrial goods collapsed in March, while euro zone business activity plummeted in April.

Reporting by Sruthi Shankar in Bengaluru; Editing by Anil D'Silva and Kirsten Donovan

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