Stock markets rebound despite concerns over Covid-19

Stock markets rebound despite concerns over Covid-19

Wall Street and European stocks rebounded on Tuesday a day after a sharp sell-off triggered by fears over the return of stricter lockdown measures.

The benchmark S&P 500 index opened 0.5 per cent higher, bouncing back from a 1.2 per cent fall on Monday, while the tech-heavy Nasdaq Composite rose 0.4 per cent.

The tech and consumer cyclicals sectors led Tuesday’s gains in the US, with retailer Amazon up 2 per cent and social network Twitter climbing 3 per cent. US energy stocks tracked oil prices higher, as global benchmark Brent crude rose 1 per cent to $41.86 a barrel.

The US dollar index, which measures the greenback against a basket of its peers, edged up by less than 1 per cent, having rallied on Monday as investors looked to haven assets.

European stocks also rose following the biggest drop in the region’s bourses since June on Monday. London’s FTSE 100 index climbed 0.7 per cent, while Frankfurt’s Xetra Dax rose 0.9 per cent and the bloc-wide Stoxx Europe 600 index advanced 0.6 per cent.

Tuesday’s broad gains come despite the UK imposing stricter lockdown measures, including forcing pubs and other hospitality venues to close at 10pm from Thursday.

The travel sector in Europe, which was hit on Monday by news of the worsening pandemic, lost further ground. Budget airline Ryanair was down 4 per cent while Trainline lost 2 per cent.

Sterling slipped 0.4 per cent against the dollar to trade at $1.2760 in early dealings, its lowest level since July. It recovered some ground after the governor of the Bank of England made it clear that the BoE did not plan to push interest rates below zero in the near future, but slipped again after the government announced new lockdown measures.

Italy’s borrowing costs fell after Matteo Salvini’s anti-migration opposition League party suffered a disappointing round of regional election results. The yield on the country’s 10-year bonds, which move inversely to prices, fell 0.06 percentage points to 0.88 per cent.

The recent sell-off in equity markets is being mirrored by unease among high-yield bond investors. The additional yield above Treasuries on US junk-rated corporate bonds rose 0.26 per cent on Monday, the biggest daily sell-off in the market since the beginning of June, according to Ice Data Services. Indicative exchange traded funds and credit derivatives now point to further selling pressure on Tuesday. 

Matt Peron, director of research at Janus Henderson Investors, said Monday’s sell-off amounted to a “correction” in an optimistic market.

“We think sentiment needs to cool and become more realistic for the market to bottom, and this could take a few weeks,” he said. “We will then need some clarity, or at least stability, on the Covid-19 and [US] election fronts for the market to move higher from there.”

Jay Powell, the Federal Reserve chair, will tell Congress on Tuesday that businesses hit by the pandemic may need “direct fiscal support” as lawmakers in Washington struggle to agree a stimulus package.

Robert Rennie, head of global market strategy at Westpac, said “multiple political flashpoints” in the US, including a fight over a new Supreme Court nomination, had lowered the odds of more fiscal stimulus ahead of November’s presidential election.

Mr Rennie said investors were also nervous about a week-long holiday in China that begins on October 1 and its impact on global commodities demand. Markets were showing “signs of softening within a number of key commodities”, he said.

In the Asia-Pacific region, a sell-off in shares of HSBC and Standard Chartered deepened. Hong Kong-listed shares in both banks fell 2 per cent, taking losses for each of the Asia-focused lenders to 10 per cent during the past two sessions. The pair were among those named in media reports on Monday that alleged international banks had flagged $2tn in suspicious transfers to US anti-money laundering authorities.

Hong Kong’s benchmark Hang Seng index closed down 1 per cent, while China’s CSI 300 of Shanghai and Shenzhen-listed shares extended losses to fall 1.2 per cent on Tuesday. Australia’s S&P/ASX 200 dropped 0.7 per cent. Markets in Japan were closed for a public holiday.

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