Global stocks sank on Monday, with US and European markets tumbling after sharp rises in coronavirus cases across the continent prompted concerns about new lockdowns.
Wall Street opened lower on Monday, with the blue-chip S&P 500 stock index down 1.7 per cent and the tech-heavy Nasdaq Composite falling about 1.1 per cent in early trading. The S&P fell 0.6 per cent last week, its third consecutive week of losses.
Renewed virus concerns dealt a blow to bank and travel shares across markets, pushing Bank of America down 2.6 per cent and United Airlines down 8 per cent. The falls come amid persistent rises in coronavirus cases worldwide and the prospect of tighter lockdown restrictions in countries such as the UK. Oil prices also fell 3 per cent to under $42 a barrel for benchmark Brent crude, as traders grew anxious over the outlook for energy demand.
Nasdaq-listed shares in electric truckmaker Nikola, meanwhile, slumped 14 per cent after its founder said he would step down from his role as executive chairman following allegations by a short seller that the company was an “intricate fraud” — claims denied by the company.
In Europe, London’s FTSE 100 had fallen 3 per cent by afternoon trading. Shares in British Airways owner IAG were down 10 per cent, while Trainline lost 13 per cent and InterContinental Hotels slipped nearly 4 per cent.
The Stoxx Europe 600 dropped 2.7 per cent, leaving the continent-wide index on track for the steepest decline since ructions in June, while the sub-index of European banks extended last week’s losses to reach its lowest level since mid-May.
The sell-off is “mainly down to what’s happening in terms of Covid-19 and potential second lockdowns”, said Artur Baluszynski, head of research at investment manager Henderson Rowe.
Europe was a “bank-financed economy. If banks are struggling, the economy is struggling. And banks will be if we get another lockdown, or tighter restrictions,” said Mr Baluszynski. Lenders would be extra cautious about who they lent to in the face of a worsening pandemic, and those who “loaded up” on commercial property before the pandemic were likely to suffer from the decline in the value of office space, he added.
Patrick Vallance, Britain’s chief scientific adviser, warned on Monday that there could be 50,000 new infections every day by mid-October if the virus continued spreading at its current rate. New infections in the UK were doubling every seven days, he said.
Analysts at Deutsche Bank said: “We do expect the pace of recovery to slow over the next several quarters in most if not all economies as the virus spreads faster with the arrival of cold weather in the northern hemisphere, and thanks to a likely halt in US fiscal support until after the election this November.”
The sharp fall in bank shares reflects in part the long-running pressure on bond yields and the prospect of a lengthy period of near-zero interest rates. But pressure on lenders intensified after the International Consortium of Investigative Journalists and other media groups including BuzzFeed alleged that global banks had flagged up suspicious transfers worth more than $2tn to US anti-money laundering authorities between 1999 and 2017.
Lenders including Lloyds Banking Group, Barclays and HSBC slid. Deutsche Bank shares were down as much as 8 per cent, their biggest one-day fall since April. Meanwhile, HSBC’s London-listed shares fell 5 per cent to their lowest point for more than 20 years and the bank’s Hong Kong-listed stock sank to its lowest point for more than 25 years.
Dickie Wong, head of research at Kingston Securities, said the ICIJ report had added to a host of issues that were undermining investor demand for HSBC’s shares, including the bank’s announcement in April that it would end dividend payments.
HSBC’s Hong Kong-listed shares dipped below HK$30 on Monday, a level they did not even breach during the global financial crisis: “Even individual investors have already given up on the stock,” Mr Wong said.
However, despite fears of renewed lockdowns and the uncertainty posed by the US election, the wider sell-off should “prove fairly limited given the sheer abundance of central bank and government support at hand, which should ultimately place a sturdy floor under the markets”, said Candice Bangsund, vice-president and portfolio manager at Fiera Capital.
European policymakers are debating the future of pandemic stimulus programmes, with the European Central Bank having initiated a review of its bond-buying programme and the UK Treasury planning to announce an extension of its business support loan programme on Monday. The UK government is also under pressure to decide whether to extend the furlough scheme beyond October 31.
The downbeat start to the week’s trading came as a survey of fund managers found an increasing number had been betting on a rapid global economic recovery. All but a small minority of 186 investors and strategists surveyed in September by Absolute Strategy Research expected corporate earnings to be higher in the next 12 months, equities to beat bonds, and cyclical stocks, such as retailers and carmakers, to outperform defensive stocks. The survey was the most optimistic since December 2016.
“I’m surprised at how much optimism is embedded in the survey,” said David Bowers, ASR’s head of research. “I don’t think we expected it to be quite so robust.”
Asian markets were also under pressure at the start of the week. China’s CSI 300 index closed down 1 per cent and Hong Kong’s Hang Seng fell 2.1 per cent.