Wall Street followed European bourses sharply lower on concerns a rising number of coronavirus infections will prompt a new wave of social restrictions that will dampen business activity.
The US benchmark S&P 500 fell 2 per cent in morning trading on Monday. The Vix index rose more than 4 points to 31.6, well above its long-term average of 20, in a sign investors are bracing themselves for flare-ups in volatility in the month ahead.
US coronavirus case numbers have surged in recent days, with new weekly cases rising the most since a major summer outbreak. In Europe, Italy and Spain announced sweeping measures on Sunday to address a jump in new cases.
“Spain and Italy moving to enhanced restrictions to combat their growing case numbers is clearly spooking European equities,” said Charles Hepworth, investment director at Zurich-based asset manager GAM. With the pandemic worsening globally and the US presidential election looming, “it’s a very choppy trading period that we’re going into”, he added.
German stocks led the broad fall across European markets, with Frankfurt’s Dax index down 3.7 per cent in afternoon trading. Germany’s SAP tumbled as much as 22 per cent — and was on track for its worst fall since the late 1990s — after the sprawling business software group warned that renewed lockdown measures had hit demand for its services.
The region’s tech groups were down more than 7 per cent, while Milan’s FTSE MIB, the CAC 40 in Paris and Europe’s Stoxx 600 all fell 1.8 per cent.
Energy stocks also sold off following a pullback in oil prices. Brent crude, the international benchmark, slipped more than 3 per cent to below $41 a barrel on fears that rising infections would hit demand.
Traders were also watching out for news of US stimulus measures, although the chances that a deal might be passed before the election dimmed this weekend. On Friday, Mark Meadows, White House chief of staff, said a deal could emerge in the next day or two, but Steven Mnuchin, Treasury secretary, said there remained hurdles to reaching an agreement.
“We think stimulus talks really are dead now,” said Win Thin, global head of currency strategy at New York-based financial services group BBH.
Savvas Savouri, chief economist for Toscafund Asset Management, said the impasse amounted to pre-election “politicking” but said there was likely to be a deal approved after polling day.
In Europe, data about German business confidence disappointed investors. The Ifo Institute said October’s reading for the main business climate index fell to 92.7 points, below September’s reading and less than the 93 expected by analysts polled by Reuters. It marked the first fall after five consecutive rises.