European stock markets closed higher after a volatile session on Monday, recovering losses caused by a collapse in oil prices and fears of the worst quarterly earnings season since the global financial crisis.
Healthcare stocks .SXDP led the charge, marching to over six-week highs after drugmaker Novartis won the go-ahead from the U.S. Food and Drug Administration to conduct a randomized trial of malaria drug hydroxychloroquine against COVID-19.
The pan-European STOXX 600 index closed up 0.7%, after losing as much as 1.2% during the session as oil prices plunged due to oversupply concerns. The energy sector .SXEP posted its fourth decline in five sessions.[O/R]
As the first-quarter results season kicks into high gear, analysts expect STOXX 600 firms to post a 22% plunge in earnings as a result of the pandemic, according to IBES data from Refinitiv, after estimates at the start of the year had initially forecast a 10.5% rise.
Ray-Ban maker EssilorLuxottica became the latest company to scrap its dividend and said it could consider cost cuts to shore up cash reserves. Its shares fell 0.8%.
“On one hand we’re getting the reality check of company earnings and real data from the global and European economy, but on the other hand we’ve got the impact of significant fiscal and monetary stimulus coming through,” said Richard Dunbar, head of multi-asset research at Aberdeen Standard Investments.
Readings on April manufacturing from across the world are due on Thursday and are expected to hit recession-era lows.
The STOXX 600, which hit an eight-year low in March, has since recovered about 23% due to big fiscal and monetary stimulus packages around the world, but still remains 31% away from its record high as evidence of the economic hit from the pandemic piles up.
The travel and leisure sector .SXTP, worst hit by the pandemic, has recouped almost half its losses since March lows, but still remains about 40% down for the year.
With coronavirus deaths slowing in some of the worst-hit parts of Europe, some countries have signalled they could relax strict stay-at-home orders to restart supply chains, even as health officials warn of another wave of infections if the lockdowns are lifted too soon.
Hussein Sayed, chief market strategist at FXTM, said a second wave of infections and subsequent lockdown would be a disastrous outcome.
“Instead of confronting a steep recession, we might end up with a long-lasting depression,” he added. “Equity performance cannot diverge for a prolonged period of time from fundamentals, so if we do not see a true economic recovery in the coming months, we expect another leg lower in stock markets.”
Dutch health technology company Philips rose 6.1% after saying sales and profit margins could still rise in 2020 if the pandemic eases in coming months.
Airbus lost 2.1% after Reuters reported it had put six jets made for Malaysia’s AirAsia up for sale.
Investors will closely watch a European Union summit on Thursday for signs of the bloc’s response to the coronavirus crisis following several calls for a unified euro zone bond issuance programme.