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Wall Street joins global stock sell-off prompted by rising Covid worries - Financial Times

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Wall Street stocks opened sharply lower after a broad sell-off in Europe triggered by mounting expectations of new government measures to slow the rapid spread of coronavirus.

The US benchmark S&P 500 fell 1.8 per cent in early trading. The fall came after Europe’s Stoxx 600 declined 2.8 per by lunchtime, leaving it down 5 per cent since the end of last week and at the lowest level since May. German and French markets were among the worst hit across the region.

Wednesday’s selling, which also ricocheted into the oil market, was prompted by growing anxieties about the increase in infections globally, and investor jitters less than a week before the US presidential election.

Angela Merkel, the German chancellor, and French president Emmanuel Macron are both expected to announce on Wednesday new restrictions to curb the second wave of the pandemic, which is worsening across the continent. In the UK, data released by the government this week showed that coronavirus cases, hospitalisations and daily deaths are all rising.

Alexis Gray, investment strategist at Vanguard, said it had become clear that new restrictions imposed in Europe to quash another outbreak of the virus had been insufficient, meaning more curbs were likely As a result, “the economic outlook has dimmed”, she said.

“We’re facing unprecedented uncertainty and that’s what the market is struggling with,” added Ms Gray. 

Line chart of Stoxx 600 index showing Volatility returns to European markets

However, Samy Chaar, chief economist at Lombard Odier, said there was a “limit to this volatility episode”.

“While Europe is shutting down, Asia is reopening,” he said. “It’s very different to the start of the year when we had the convergence of everyone shutting down.”

Lockdowns — which weighed heavily on economic output during the initial wave of the pandemic — are also more targeted than in spring, while stimulus measures have already been “engineered” so policymakers have the option to “extend or increase them”, said Mr Chaar.

Analysts said the upcoming US election was expected to be a source of further tumult in equities markets during the next few weeks. The Vix index, a measure of expected volatility over the next month, traded at around 38 on Wednesday, well above its long-term average of 20.

“The investment environment has entered a period of greater volatility due to uncertainty regarding the US presidential election on November 3, the timing of an additional US stimulus package, as well as concerns about how rising Covid-19 cases in western countries will impact the economic recovery,” said the Credit Suisse investment strategy unit.

Europe’s major bourses remained heavily in the red in afternoon trading. The CAC 40 in Paris was down 3.3 per cent, while Frankfurt’s Xetra Dax sank 3.8 per cent and London’s FTSE 100 was 2.3 per cent lower.

Bank stocks — which have been under pressure during the pandemic — were among the worst hit, despite upbeat earnings this week from lenders including Deutsche Bank and HSBC. The Stoxx travel subsector fell about 2.4 per cent, while energy stocks tracked the price of oil lower.

Brent crude, the international benchmark, fell 4.7 per cent to below $40 a barrel, its lowest level in three weeks as concerns grow over weakening fuel demand.

Line chart of showing Stock volatility returns on both sides of the Atlantic

Traders increasingly believe Opec and its allies will need to delay plans to add back oil production in January. The recovery in fuel consumption since April appears to have stalled and may be reversing, with US fuel inventories rising.

Stephen Brennock at oil brokerage PVm said $40 a barrel was a “red line” for Opec, but the cartel is having to deal with rising supplies from Libya where the end of a fuel blockade has led to its rapid resumption of output.

American and German government debt increased modestly in price, suggesting rising demand for the haven assets. The yield on the 10-year US Treasury bond was down about 0.02 percentage points at 0.76 per cent, while its German equivalent fell 0.03 percentage points to minus 0.63 per cent. The dollar ticked up 0.4 per cent against a basket of six major currencies.

Additional reporting by David Sheppard in London

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