Markets retreat as coronavirus fears rise and US stimulus hopes wane

Kumutha Ramanathan
·3-min read
US Treasury Secretary Steven Mnuchin says a stimulus deal is unlikely to be reached before the November election. (Credit: Joshua Roberts/Reuters)
US Treasury secretary Steven Mnuchin says a stimulus deal is unlikely to be reached before the November election. Photo: Joshua Roberts/Reuters

Asian and European markets were lower on Thursday as investors focused on the rising COVID-19 threat and hopes of a US stimulus package before the 3 November election seem more unlikely.

European markets opened in negative territory and the mood remained downbeat throughout the day. The pan-European STOXX 600 (^STOXX) was down 2.1%. Germany’s DAX (^GDAXI) was lower by 2.6%, and France’s CAC 40 (^FCHI) declined by 2.2%. The FTSE 100 (^FTSE) was down by 1.8% in London.

On the COVID-19 front in the UK, the health secretary has confirmed restrictions would increase across multiple regions of the UK, including London, from Saturday. The government in Northern Ireland has also laid out its plans for a four-week lockdown, while the Welsh government is preparing to close its border with England.

READ MORE: Pound dives as COVID-19 restrictions ramp up on Brexit deadline day

“If there was unanimity with respect to the March lockdown, there is anything but in today’s climate, with the air thick with mutiny, while [UK] Labour party leader Keir Starmer has called for a two-week countrywide ‘circuit breaker’ lockdown in an attempt to slow down the spread of the infection, across the whole of England,” said Michael Hewson, chief markets analyst for CMC Markets in a note.

“This inevitably has prompted fierce resistance from a number of different quarters, not least those regions which currently have low infection rates, with the prospect of any sort of new lockdown being labelled as a business breaker, particularly since with a two week lag time with respect to new cases, it is hard to gauge whether a two week lockdown would be successful or not.”

Italy has also reported a record number of cases over 7,000, partly due to higher testing levels than were in place in March. French president Emmanuel Macron has further announced that the country’s largest cities, including Paris, are going to be subject to a 9pm curfew starting on Saturday that will last at least four weeks.

Watch: Coronavirus restrictions tighten in London

Sterling was the strongest performing G10 currency on Wednesday following reports that the UK has softened its stance on Brexit and won’t walk away from trade talks with the EU. Following a call that reportedly took place between UK prime minister Boris Johnson, European Commission president Ursula Von der Leyen and European Council president Charles Michel, the end of October or first few days of November is now regarded as the real deadline for getting a deal done.

READ MORE: OECD: UK at 'critical juncture' with COVID-19 and Brexit

Initial market optimism over a US stimulus deal has now turned to “negative short-term headlines,” according to Deutsche Bank in a note.

The prevailing concern comes from US Treasury secretary Steven Mnuchin, who said he does not expect a relief package to be achieved before the election, despite he and speaker of the US House of Representatives Nancy Pelosi making initial progress over the last few weeks.

The main point of contention is the not overall cost but the policies within each respective party’s bills that could not be easily reconciled. A further impasse comes as US Senate majority leader Mitch McConnell said that some Republican senators were hesitant to pass a bill of the size that the White House and House Democrats have proposed.

US markets were also in the red.

The S&P 500 (^GSPC) was down 0.6%, the Dow Jones (^DJI) was heading lower by 0.5%, and Nasdaq (^IXIC) was tilting down by 0.9%.

Asian markets were in the negative.

Japan’s Nikkei (^N225) was down 0.5%, Hong Kong’s Hang Seng (^HSI) was lower by 2.1%, China’s Shanghai Composite (000001.SS) also declined by 0.3%. The KOSPI (^KOSPI) in South Korea was down by 0.8%.

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