European stocks were down across the board on Thursday on growing fears that the economic recovery from the coronavirus crisis is stalling.
The benchmark Stoxx Europe 600 shed 0.8 per cent in morning trading, while the UK’s FTSE 100 fell 0.7 per cent and Germany’s Dax dropped 0.4 per cent. The Stoxx’s travel subsector hit its low for the month in early trading.
The declines followed a sell-off on Wall Street on Wednesday. Warnings on the economic rebound from US Federal Reserve officials have unsettled equity investors in recent days. “The economy is recovering robustly, but we are still in a deep hole,” Richard Clarida, Fed vice-chairman, told Bloomberg Television yesterday.
Investor fears have been stoked this week by rising coronavirus cases, the announcement of renewed lockdown measures in Europe and a slew of disappointing economic data for the eurozone.
“Most forecasters’ fear is now becoming reality. The initial rebound in services output as the economy reopened was robust, but it now seems to be fading quickly with the return of the virus,” said Claus Vistesen, chief eurozone economist Pantheon Macroeconomics.
Traders are looking ahead to a key gauge of German business confidence later this morning. European government bold yields fell slightly as traders sought safety: the yield on 10-year German debt was down 0.02 percentage points at minus 0.52 per cent. Yields move inversely to prices.
The US stock market was also tipped to open slightly lower later in the day, with S&P 500 futures down 0.1 per cent. Overnight, the benchmark S&P reversed early gains to shed 2.4 per cent after the Fed warning. The benchmark is now down 9 per cent from its record high in August.
The dollar, as measured against a basket of its trading peers, was little changed after rising to its highest level since June on Wednesday as nervous investors turned to the greenback for safety.
The pound hovered around its 200-day moving average, having slipped below that level on Wednesday, as the UK government prepared to roll out new emergency schemes to prop up jobs and businesses.
Mike Bell, global market strategist at JPMorgan, said markets would be driven by the prospects for a vaccine and further stimulus measures on both sides of the Atlantic. More support must come through after the furlough scheme ends in the UK and after the US election, if not before, and remain in place until a vaccine is found, he said.
“If fiscal support fades too soon then it’s equivalent to putting up interest rates too soon. The risk this time of ‘double dip’ is that we’re hit from a second wave or virus or if you get premature fiscal tightening,” said Mr Bell.
Interest rates were already low when the crisis hit, so fiscal stimulus — helped by those low borrowing costs — will need to play more of a role than it did in 2008, he added.
Shares across Asia-Pacific also fell on fears of a slowing recovery. China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks dropped 1.9 per cent and Hong Kong’s Hang Seng index shed 1.6 per cent. South Korea’s technology-focused Kospi fell 2.3 per cent while Japan’s Topix slipped 1.1 per cent.