Picture: 123RF/DENIS PUTILOV
Picture: 123RF/DENIS PUTILOV

London/Singapore — World stocks spluttered to their lowest level in more than a week on Thursday, as a surge in US coronavirus cases and an International Monetary Fund (IMF) warning of a nearly 5% plunge in the global economy this year hit the bulls again.

Asia had suffered its biggest drop in eight sessions overnight and Europe’s Stoxx 600 fell almost 1% to add to the 3% drubbing it had taken the previous day, albeit following a red-hot few months.

Nerves were rising again about the impact of Covid-19.

In the US, Florida, Oklahoma and South Carolina reported record increases in new cases on Wednesday. Seven other states had record highs earlier this week and Australia posted its biggest daily rise in infections in two months.

The governors of New York, New Jersey and Connecticut ordered travellers from eight other states to quarantine on arrival, a worry for investors who had mostly been expecting an end to pandemic restrictions.

Disney has delayed the reopening of theme parks and resorts in California, and Texas is facing a “massive outbreak” and considering new localised restrictions, its governor said.

“During the swift rebound since the March lows, equity markets may have got a little ahead of themselves,” wealth manager DWS said in a quarterly chief investment officer report.

Wall Street S&P 500 futures had also buckled below a key technical level known as the 200-day moving average, leaving investors huddling in traditionally safer government bonds and gold.

The IMF said on Wednesday it now expects an even deeper global recession, with output likely to shrink 4.9% this year rather than the 3% contraction it had predicted in April.

“There is a little bit of reality bites coming,” said Damian Rooney, senior institutional salesman at stockbroker Argonaut in Perth. “I don’t think there was a particular straw that broke the camel’s back, but people are a little bit twitchy — there are a lot of reasons to be pretty cautious.”

In the currency markets, the dollar clung on to broad gains which had lifted it from near a two-week low.

Yields on benchmark 10-year US treasuries sank to a 10-day low of 0.6692% and those on German bunds — Europe’s benchmark safe asset — dipped to -0.453%, though that remained within a well-worn recent range.

Handbrake

Anxiety is likely to remain heightened before US data, including jobless claims figures due at 12.30pm GMT, and new coronavirus numbers.

“Any improvement in jobs might be counteracted if there is another pickup in the case load in the US,” said Kyle Rodda, market analyst at brokerage IG in Melbourne. “It’s a potential handbrake on the growth rebound story.”

Bank of England chief economist Andy Haldane is due to speak about the future of society at 5pm GMT. Haldane argued against last week’s increase to the bank’s bond-buying programme. The pound was up for a third day in four before that.

Signals on the trade front and political uncertainty have also unnerved investors.

The US has added items valued at $3.1bn to a list of European goods eligible to be hit with import duties.

The Trump administration has determined that China’s Huawei and video surveillance company Hikvision are owned or controlled by the Chinese military, laying the groundwork for sanctions and new China-US tension. That has stalled a rally in riskier currencies, and pushed the Australian dollar under 69c and had the kiwi stuck around 64c.

Gold climbed to $1,764 an ounce, while Brent crude slipped back under $40 a barrel and US crude futures fell by 26c a barrel or 0.7% to $37.75.

Reuters