LIVE MARKETS-Italy's doom loop is at it again

* FTSE 100 has largest drop since financial crisis
* European oil and gas sector fall
* Banks drop below 2008 levels
* STOXX 600 falls to bear market territory

Welcome to the home for real-time coverage of European equity markets brought to you by Reuters
stocks reporters. You can share your thoughts with Thyagaraju Adinarayan
(thyagaraju.adinarayan@tr.com), Joice Alves (joice.alves@tr.com), Julien Ponthus
(julien.ponthus@tr.com) in London.


ITALY'S DOOM LOOP IS AT IT AGAIN (1322 GMT)
Italy's is clearly the European country suffering the most from the coronavirus outbreak at
the moment so there's little surprise to see Milan, falling the most among its peers with a 11%
drop.
But there's more to it: the Italian banking sector is suffering a 12.6% fall while the yield
of the Italian 10-year government bond is up sharply. Yep, rising while the Germany's Bund yield
has just hit a record low close to -0.9%!
That spread between Italian and Germany 10-year bond yields has been a closely watched
indicator for the health of the Italian banking sector and it's not looking good if history
means anything:

(Dhara Ranasinghe and Julien Ponthus)
*****




EYES ON GERMANY'S REACTION TO COVID-19 (1306 GMT)
Germany's industrial economy is very exposed to the supply-side disruption created by
factory closures in China and the rising number of new coronaviruus cases in the
country suggests factory closures could happen soon.
But there is a upside to it: Investors look forward to the stimulus the euro zone's richest
economy could unleash.
"Germany’s fiscal policy is likely to become much more stimulative in the coming quarters,"
BCA says. "Such dynamics would confirm our assessment that a sharp rebound will follow any
slowdown, however deep it may be".
"Even the most fiscally conservative governments – like Germany or the Netherlands – are
standing at the ready to mobilise many tens of €-billions of fiscal stimulus support to get
their disrupted economies back on track," says Tatton Investment Management.
Meantime, Germany's just promised to increase public investments by 12.4 billion euros by
2024 and to make it easier for companies to claim subsidies to support workers on reduced
working hours.
The DAX isn't doing better than its peers however at the moment with a 7.6% fall compared to
7.3% for the STOXX 600.
(Joice Alves)
*****


MEANWHILE, BITCOIN... (1256 GMT)
Also crashed and this is a FYI to anyone out there believing it has safe-haven qualities. At
least it has shown none over the weekend as cryptocurrency fell a whopping 15% from Friday's
close.
During the height of the U.S.-China trade war, bitcoin rallied and got attention of
investors who were looking for alternative safe-havens.
Gold surged during that period, and so did bitcoin, although only briefly. But those moves
are as mysterious as any in the last decade, when the digital currency's value surged from a few
dollars to 1000s of dollars.




(Thyagaraju Adinarayan)
*****


WHAT CHART IS THE NY FED WATCHING? (1247 GMT)
Just days after slashing its key Fed funds rate by 50 basis points, the Federal Reserve Bank
of New York increased the amount offered in daily overnight and two-week repo operations to
soothe investor nerves on Monday.
But markets have ignored the central bank stimulus so far.
A key gauge of U.S. dollar funding costs in Europe via money markets has widened to a
five-month high while a bank stress gauge in the United States is approaching its highest in
nearly two years, showing how nervous markets are.
While some of the widening in money market spreads can be traced to typical quarter-end
demand for U.S. dollars and the fiscal year end in Japan, it remains to be seen whether the
rising tensions in money markets spills over to broader markets.




(Saikat Chatterjee)
*****

FLYING BLIND INTO THE U.S. OPEN (1244 GMT)
Nice headline from Axicorp's Stephen Innes who makes a fair point that with U.S. futures
prevented to fall deeper than 5%, we don't really know what to expect when Wall Street opens in
an hour.
"The S&P 500 E-mini future has been stuck limit down with a 5% loss for almost the entire
day. That means the market is flying blind on how the cash market is going to react", he writes.
Here's the S&P 500 E-mini chart this morning: yep, hard to make anything of a flat pancake
chart, isn't it?


(Julien Ponthus)
*****



WHAT FED REPO ANNOUNCEMENT? (1202 GMT)
There's a lot of talk about what governments and central banks could do to calm markets down
and control the damage the coronavirus epidemic will do on the global economy.
But these headlines announcing a major liquidity boost had close to no effect on the STOXX
600 or on U.S. stock futures.

See below:


Here's the story:
NY Fed raises repo limits to ensure ample supply of bank reserves

(Julien Ponthus)
*****



"THIS IS THE SIGNAL TO START BUYING AGAIN" (1141 GMT)
Why on earth would someone buy stocks today?
Well, Paul O’Connor, head of the UK-based multi-asset team at Janus Henderson Investors,
just told us this:
"Today is the first day we are seeing widespread panic and for me this is the signal to
start buying again.
I don't know where the bottom is but I know I would rather be buying into liquidation and
capitulation than selling.
We are now seeing panic and capitulation which is consistent with the market
starting-to-bottom-out phase!".
Guess this is a time for contrarians to show what they've got.

(Sujata Rao with Julien Ponthus)
*****




SENTIX SCREAMS RECESSION, SINKS IN SYNC WITH MARKETS (1123 GMT)
"Never before have economic data from Sentix collapsed so sharply in all regions of the
world within a month".
This quote from one of the most watched busyness sentiment survey pretty probably tells you
all you need to know about how hard the virus is hitting global growth.
The Sentix index is screaming recession for Europe and most of the world and at a downturn
for the U.S.:


What the data is telling us is that we are past well beyond markets coronavirus jitters and
investors are actually now scrambling to price in a global recession.
"The collapse in March’s Sentix marks only the start of what is set to be growing economic
fallout as the rapid spread of coronavirus worldwide delivers the biggest shock economic shock
since the global financial crisis", Oxford Economics' Daniela Ordonez commented.
At this stage governments don't have a magic wand to fend off the incoming recession but can
do a lot in terms of damage control, she argues.
"What is in the hands of policy-makers is the delivery of measures to help businesses stay
afloat until the coronavirus storm passes or is controlled, and to stave-off avoid potential
firm bankruptcies, helping to prevent permanent jobs and economic losses."
(Julien Ponthus)
*****



EURO ZONE BANKS FALL TO UNCHARTERED TERRITORY (1055 GMT)
The index of euro zone banks has never traded lower.
So, purely based on the share price action, this coronavirus crisis is worst than the
financial crisis if 2008 and the sovereign debt crisis.
It's important to stress however that euro zone banks have seriously deleveraged and beefed
up their capital cushions and liquidity ratios in the last decade.
Anyhow, here's the EZ banking index since the euro was launched.

(Julien Ponthus)
****



OIL PRICE WAR: THERE'S A WINNER! (1040 GMT)
Certainly not the European oil and gas sector, which hit its lowest point since 1997
after the Saudi government launched a de facto oil price war against Russia.
Yet, there is one oil-related company in the Stoxx 600 which is having some gains: Vopak
! The Dutch company, which storages and ship oil products and liquid chemicals, is up
almost 5%.
Another company that is benefiting from the commodity price collapse is Ryanair, up a
little bit but enough to celebrate given that travel and leisure stocks are hit hard by the
coronavirus outbreak.
Just FYI, remember BofA raised rating on European equities and airlines on Friday:

UniCredit research team finds it easier to identify the big losers:
"For the time being the main losses will be borne by OPEC itself and the cash-strapped U.S.
shale producers," it writes in a note.
The Saudi move underestimates Russia's ability to endure the pain of low oil prices, says
the Italian bank, adding that Brent will soon return towards USD 40/bbl for two reasons:
1) "OPEC will be forced to take the initiative to stabilise the global supply even without
the contribution by Russia, because most producers cannot sustain prices this low. If Moscow
does not collaborate, the OPEC+ alliance will collapse."
2) "The financially most vulnerable shale producers will be forced out of the market, thus
removing some additional barrels".
Michael Hewson, chief market analyst at CMC Markets UK says the action might prompt the
Russians back to the table to agree a production cut, but "this seems a high stake gamble".
Take a look at how the European oil and gas companies are doing today versus the last 25
years or so:

(Joice Alves)
*****

EUROPE'S FEAR INDEX SURGES TO 2008 LEVELS (0945 GMT)
How scared are European markets this morning?
Well, somewhere between the peak of sovereign debt crisis - when markets didn't know whether
the euro zone would make it - and the great financial crisis of 2009.
For Connor Campbell at Spreadex, market price action this morning is "the equivalent of
hoarding toilet roll and tinned beans – people are scared".
Here's Europe's EURO STOXX 50 volatility index:

(Julien Ponthus)
*****



IS THE LONGEST BULL MARKET IN HISTORY OFFICIALLY OVER? (0923 GMT)
The STOXX 600 is now down over 20% from its February 19 peak hence, as far as European
shares are concerned, today could be the first official day of a new coronavirus-triggered bear
market.
U.S. stock markets haven't reached the 20% decline benchmark yet though so there's a case of
waiting for Wall Street to get to that level before sending the 'bull is dead' headline.
There are of course no official rules for calling the end of a bull market but it does seem
that with no visibility on when the spread of the virus will peak in Europe and in the U.S., a
long lasting rebound could be quite far away.
Anyhow, here's the STOXX since its 2011 low: it gained 100% in about 9 years and just lost
over 20% in about three weeks:

(Julien Ponthus)
*****



OPENING SNAPSHOT: BLOODBATH (0840 GMT)
European stocks plunge 7% as oil price drop and the fast-spreading coronavirus is sppoking
stock market.
Britain's FTSE index is on track for its worst drop since the global financial
crisis, while the pan European STOXX 600 index has entered bear market territory.
In Milan, all stocks but Recordati started trading with a delay. Many of the stocks in the
CAC-40 have also struggled to open in the first few minutes of the trading day.
Europe's oil and gas sector hit its lowest since 1997 and the basic resource index
was also down more than 10% lower.
(Joice Alves)
*****



ON OUR RADAR: WORST DAY EVER? (0728 GMT)
Futures are pointing to a super rough day for European bourses, with all the main futures
indices down 10% as oil price has lost a third of its value, the biggest collapse in 30 years.
An oil price war between Saudi Arabia and Russia adds to fears about a global recession in
the wake of the economic crisis.
Italy shuts down main economic areas and quarantines a quarter of the population, but the
banking heavy Milan stock exchange is on course for an open. Needless to say high volatility is
expected.
It is hard to pick one single stock that might be struggling the most.

(Joice Alves)
*****


ITALY AND OIL STEALING THE SHOW 0640 GMT)
European shares are seen lower this morning as investors price in a recession on fears the
coronavirus outbreak will take a massive toll on the European economy.
The centre of attention/ volatility will be Milan as Italy's financial markets will open as
usual, after the government ordered a lockdown of large parts of the rich north of the country,
including Milan, to fight the coronavirus.
Commodities are also under pressure as Saudi Arabia slashed April crude oil prices, after
OPEC’s oil supply cut pact with Russia fell apart on Friday, sending oil into a tailspin.
Aramco shares dropped to its lowest price since the IPO.
Financial spreadbetters at IG expect London's FTSE to open 419 points lower at 6,043,
Frankfurt's DAX to open 630 points lower at 10,912 and Paris' CAC to open 298 points lower at
4,841.
(Joice Alves)
*****


(Reporting by Joice Alves, Julien Ponthus and Thyagaraju Adinarayan)