Eurozone and US markets tumble as traders take fright over Covid surge

Louise Moon
·3-min read
Wall Street
Wall Street
Coronavirus Article Bar with counter ..
Coronavirus Article Bar with counter ..

Stock markets tumbled across Europe and the US on Monday amid rising panic over the second wave of Covid, a fresh crackdown on civil liberties and a brutal update from the Continent's largest software firm.

Germany led the fallers after Frankfurt-listed IT behemoth SAP slashed profit and revenue forecasts, saying that major corporate clients are cutting back on spending due to fears of more chaos ahead. SAP shares plunged 22pc and the country's Dax index fell by 3.7pc.

Meanwhile in America the S&P 500 dropped 1.9pc - paring some losses having earlier shed 2.9pc - after positive Covid tests surged to record highs and pressure built for further restrictions to control the disease.

Spanish markets fell 1.4pc and the Milan exchange in Italy closed down 1.8pc as the two countries reintroduced tougher rules to control the surge on Sunday. In Paris, where President Emmanuel Macron has extended a curfew on major cities, shares dropped 1.9pc.

The rout was spread across a wide range of industries, with banks, manufacturers, travel and leisure firms all hit by fears that strict new rules will hammer their profits and make recovery impossible.

Ryan Detrick, chief market strategist at LPL Financial, said: “When you see parts of Europe going back to rolling shutdowns, it reminds us this fight is still far from over.”

SAP said its customers, which include some of the world’s largest corporations, are pulling back on spending as spiking global coronavirus cases take a toll on business confidence. Its shares fell by the most ever in a single day.

The company’s previous outlook had assumed economies would reopen and lockdowns would ease, but it noted that recently re-introduced restrictions mean that “demand recovery has been much more muted than expected”.

Business morale in Germany also fell for the first time in six months in October as coronavirus infection rates made companies more concerned about activity slowing in the months ahead, according to a survey by Ifo Institute, the country’s leading economic research firm.

Its business climate index dropped to 92.7 from 93.2 in September, below a polled forecast of 93 by Reuters.

German Chancellor Angela Merkel, meanwhile, is planning a “lockdown light”, focusing on closing bars, restaurants and public events, reported Bild, as infections in Europe’s largest economy almost doubled in the past week.

Coronavirus Germany Spotlight Chart - cases default
Coronavirus Germany Spotlight Chart - cases default

Jordan Rochester, FX strategist at Nomura, said: “Now we are at an inflection point where we are starting to have a pick up of cases again and hospitalisation cases perking up as well.

"Lockdowns are coming in. The question is will politicians act in the same way with massive fiscal expansion, and it’s questionable.

“That is going to be the big drag on growth in [the fourth quarter].”

In London the FTSE 100 was largely spared, losing a slimmer 1.2pc but still shedding £17.4bn of value.

The US reached a daily high for new infections on Saturday, of 83,757, according to data published by John Hopkins University, and last week set a record for the most new cases in a week since the pandemic began. 

Adding to pressure across the Atlantic were fears in Washington over whether the Democrats and Republicans would agree on a fiscal aid package before the November 3 presidential election.

Markets are already nervous in the run up to the election and therefore more sensitive to any negative news, said Seema Shah, chief strategist at Principal Global Investors, adding that case numbers are “clearly weighing on sentiment”.

Monday’s market sell off is a “reminder that the road ahead is extremely rocky,” she said, with the pandemic remaining “front and centre” of traders’ minds.