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29 Mar 2021 | 11:18

Europe midday: Shares shrug off Archegos turmoil to post gains

(Sharecast News) - European shares made gains by midday despite Credit Suisse and Nomura warning of significant losses after a US client defaulted on margin calls. The pan-European Stoxx 600 index was up 0.32% with most regional bourses higher and the UK's FTSE 100 flat.

Shares in Discovery and Viacom CBS slumped on Friday, after a fund called Archegos Capital Management started a fire sale of its assets. Credit Suisse and Nomura were forced to issue warnings on Monday morning about losses relating to the margin call default, with the Swiss institutions shares down more than 9%.

"Following the failure of the fund to meet these margin commitments, Credit Suisse and a number of other banks are in the process of exiting these positions. While at this time it is premature to quantify the exact size of the loss resulting from this exit, it could be highly significant and material to our first quarter results, notwithstanding the positive trends announced in our trading statement earlier this month," the bank said. analyst Neil Wilson said despite the impact "there is no sign of contagion in broader markets with the DAX hitting a fresh all-time high this morning".

"As well as the tumble in the two US mass media stocks, reports indicate that Deutsche Bank, Goldman and Morgan Stanley forced Archegos to liquidate trades in a number of big China tech stocks on Friday. Archegos had built up a large stake in companies like Baidu and Farfetch, which had started to sell off in March."

"I don't think is systemically risky in itself - Archegos was massively levered and it appears to have been too concentrated in a number of risky stocks - but when we look at this and think about the GameStop saga and the decline in Tesla as two examples - what we're seeing are more and more pockets of very unusual trading activity in some stocks."

Investors were keeping a wary eye on the row between AstraZeneca and the EU over vaccine provision with the 27-member bloc threatening to block the pharma giant exporting any does until it met contractual promises on supply.

"The virus situation in Europe continues to deteriorate and Germany delaying the EU Recovery Fund will not help the zones economic position," said Rony Nehme, chief market analyst at Squared Financial.

"The market is still long but the story of US outperformance on the back of a swift vaccine roll out while Europe lags behind is becoming stronger. Equities were volatile at the end of last week and we expect the same again this week - which will be shortened with the Good Friday holiday - as we see funds managing their quarter end positioning."

Oil prices fell as the cargo ship blocking the Suez Canal was partially refloated, raising hopes the vital route could re-open and allow backed-up container traffic to get through.

"The oil price has of late been drifting on concerns that hopes for the resumption of demand has been overstated, although it remains strongly ahead by 22% so far this year," said Richard Hunter at interactive investor.

In other equity news, shares in Poland's CD Projekt were up more than 9% after plans about the studio's downloadable content for its Cyberpunk 2077 game leaked on Reddit.

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