US and European stocks dropped on signs 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.
At the Wall Street opening bell, the technology focused Nasdaq Composite fell 1.4 per cent and the S&P 500 dropped 1.2 per cent. This followed declines in Europe, where the region-wide Stoxx 600 slid as much as 2.5 per cent.
A rally in German 10-year debt knocked yields on the regional haven down 0.05 percentage points to minus 0.624 per cent, the lowest since Italy implemented a national lockdown in mid-March. The yield on US Treasuries of the same maturity fell 0.03 percentage points to 0.6975 per cent.
The dollar, as measured against a basket of trading partners’ currencies, rose 0.4 per cent. Brent crude, the international oil benchmark, slipped by almost 4 per cent to $41.66 a barrel.
The gloomy mood built up after several countries including 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 reported 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.
He said economists and investors had not expected governments to allow the virus to reach the point it has now, where “hospital ICUs are in danger of overflowing”.
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,” said Sophie Chardon, strategist at Lombard Odier. She said investors should brace themselves for “more volatility” in share prices.
The Vix index of expected volatility on the S&P 500 rose by more 2 points to 28.6. 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 major 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.
*A map previously displayed an erroneous data-point on the spread of coronavirus in Île-de-France due to an error in an external data set.
Additional reporting by Harry Dempsey in London and Peter Wells in New York