US and European stocks drop as Covid cases climb
US and European stocks dropped on signs that the spread of coronavirus is gathering pace, while a rally in German debt pushed yields on the regional haven to the lowest level since the market tumult in March.
The benchmark S&P 500 fell 0.5 per cent, led by declines in shares of big tech companies including Amazon, Microsoft and Facebook. The Nasdaq Composite fell 1 per cent. The drops followed declines in Europe, where the region-wide Stoxx 600 slid 2.1 per cent.
France and the UK announced new restrictions in an attempt to slow the spread of the virus, which is accelerating across Europe.
The US reported 57,000 new cases on Wednesday, as a record number of states registered daily increases of more than 1,000 new infections, while the Trump administration worried some scientists by appearing to champion a controversial herd immunity strategy.
“Markets have been surprised by the progress of the virus in the second wave,” said John Roe, strategist at Legal & General Investment Management.
A rally in German 10-year debt pushed yields down 0.03 percentage points to minus 0.613 per cent, the lowest since Italy implemented a national lockdown in mid-March. The yield on US Treasuries of the same maturity was little changed at 0.73 per cent.
Junk corporate debt, by contrast, weakened. A popular exchange traded fund that invests in high-yield debt, known by its ticker HYG, was poised for its third consecutive day of declines.
The dollar, as measured against a basket of trading partners’ currencies, rose 0.4 per cent. Brent crude, the international oil benchmark, slipped 0.5 per cent to $43.09 a barrel.
Mr Roe said economists and investors had not expected governments to allow the virus to reach the point it has now. Across the western world, governments had prioritised social wellbeing, for example, by allowing schools and places of worship to reopen, he said.
“The best of the recovery is now behind us,” added Sophie Chardon, strategist at Lombard Odier.
In a sign of the fragility of the global economy, data released on Thursday showed 898,000 Americans filed for first-time jobless benefits last week. Meanwhile, airline Ryanair sharply cut its winter flight schedule, citing increased government restrictions across Europe.
Ms Chardon said investors should brace themselves for “more volatility” in share prices. The Vix index of expected volatility on the S&P 500 rose by 1 point to 27.4. The so-called fear gauge’s long-run average is about 20. A similar index forecasting eurozone stock market volatility also rose.
On Wednesday evening, French president Emmanuel Macron declared a public health emergency and imposed a 9pm to 6am curfew on Paris and eight other big French cities.
German chancellor Angela Merkel warned that cases of Covid-19 were in an “exponential growth” phase and limited private gatherings to 10 people from two households. In Britain, households in London will be banned from mixing in any indoor setting from Friday evening.
Additional reporting by Harry Dempsey in London and Eric Platt and Peter Wells in New York