European stocks ended lower, snapping two days of gains, after the region’s leaders failed to agree on a long-term stimulus package and reports of a failed Covid-19 drug trial weighed on sentiment.
The Stoxx Europe 600 Index fell 1.1% on the day, posting its first weekly drop in three weeks.
All 19 industry groups slipped, with cyclicals including carmakers, banks, and travel and leisure leading the decline.
Earnings were also in focus. Food giant Nestlé gained 1.8% after reporting its fastest sales growth since 2015 as consumers loaded up on frozen food.
Oil major Eni dropped 2.6% after reporting a slump in first-quarter profit and cutting its production forecast for the year.
The European stock rally has stalled this week, after bouncing from a March low amid monetary and fiscal support and optimism over the slowing rate of infections in a number of countries.
Investors are still displaying caution, with cash funds seeing massive weekly inflows, while equity funds continued to bleed, according to data from EPFR and Bank of America.
They were yesterday dealt a blow after German chancellor Angela Merkel’s pledge to back a huge stimulus package for the EU was not enough to force through a deal.
Further damping sentiment, an antiviral drug by Gilead Sciences was reported to have flopped in its first randomised clinical trial, though the firm disputed that characterisation.
“The European Council Meeting was a bit a disappointment and market expectations were possibly too high,” said Alberto Tocchio, chief investment officer at Colombo Wealth.
“We got the impression that the will to find a solution is closer than ever but bureaucracy is working very slow. The market will need to be more patient and we are not so sure they will be,” he said.
Ireland South MEP Billy Kelleher said it was up to Europe to fund its recovery and its reconstruction.
“Those of us in leadership positions at a European level cannot keep blaming national governments for not funding our ideas — we must fund them ourselves.
“Using the European Commission’s existing legal right to borrow from the markets, it should issue consolidated annuities to finance the €1tn reconstruction programme.
"As the commission already has a AAA rating with most agencies, we could expect to see interest rates of between 1.5% and 2.6%. Crucially, member state governments would not be required to fund interest repayments, as that would come from the EU’s own budget,” he said.
Investing in European transport, energy, and infrastructure networks to relieve pressure on member states’ own capital budgets, as well as decarbonising Europe’s by moving to a climate-neutral future were crucial, he said, while countries most affected by the Covid-19 pandemic had to be prioritised.
Germany expects the fallout from coronavirus to lead to the worst economic contraction since the country began its recovery in the aftermath of the Second World War.
Gross domestic product is forecast to shrink by 6.3% in 2020, a deeper plunge than even during the financial crisis a decade ago, Handelsblatt reported, citing economy ministry projections due to be presented next week.