A hodgepodge of unwelcome developments undercut risk sentiment as the new week dawned, with the virus taking center stage and geopolitical tensions flaring anew.
SAP collapsed more than 20% at one point, after the German software maker slashed revenue guidance for the full year and cautioned on the ramifications of expected new COVID-19 lockdowns.
Cloud revenue, sales, and profit aspirations were all pushed back by at least a year, and the timeline on the company’s 2023 strategic initiative is now 2025.
“Lockdowns have been recently re-introduced in some regions and demand recovery has been more muted than expected,” SAP remarked. The warning was worse than the market feared, and that was reflected in the shares (figure above).
The ~20% drop was on track to be the biggest single-day decline in at least two decades. It dragged down German equities and weighed heavily on the Stoxx 600 tech index, which plummeted nearly 6%.
“[We] assumed economies would reopen and population lockdowns would ease, leading to a gradually improving demand environment in the third and fourth quarters,” SAP said.
That assumption wasn’t (and isn’t) a safe one — figuratively or literally.
Spain is imposing a nationwide curfew while Italy is cracking down further amid spiraling caseloads across Europe’s largest economies. The public backlash is becoming palpable, raising the specter of anti-lockdown protests turning into super-spreader events, a tragically ironic scenario reminiscent of the US experience.
In Italy, operating hours for bars and restaurants are limited to 6 PM, gyms are closed as are movie theaters, and Italians have been cautioned against traveling. “If we respect the rules this month, we’ll keep the curve under control and face December and the holiday season with more serenity,” Giuseppe Conte said. More than 21,000 people were infected in a single day over the weekend in Italy, a record. Citizens are not supposed to invite guests to their homes.
Spain is now living under a state of emergency and a new national curfew. The measures are set to last six months pending lawmaker approval. “Why six months?,” Prime Minister Pedro Sanchez asked, on behalf of curious citizens, during a television address. “Because that’s the amount of time that experts expect we need not only to move beyond this second wave… but also to move beyond the most harmful stage of the pandemic.”
“What we have to do is limit our mobility, reduce our social relationships,” Sanchez went on to say. “We have to appeal again to that social discipline, and that spirit of victory.”
Germany is considering its own next steps. Angela Merkel says the months ahead will be “very, very difficult” for Germans.
In an ominous sign, Ifo printed below expectations Monday, which was just insult to injury. Business confidence dropped to 92.7 from 93.2 last month. Expectations fell to 95 from 97.4.
“What’s worrying at the moment is really the rise in infections,” Ifo President Clemens Fuest told Bloomberg Television. “It’s unclear what could stop that, and that will have an impact on the recovery.”
Indeed, Clemens. And SAP seems to agree.
“After several leading indicators pointing to a weakening of the economy, Germany’s most prominent leading indicator has finally joined the crowd,” ING lamented on Monday. “At face value, [it’s] not weak enough to fear another collapse of the economy but as all of Europe is in the second wave of the virus, today’s Ifo index definitely marks the end of the rebound and the start of double-dip fears,” the bank added.