Global stocks fell sharply on Thursday after the Federal Reserve offered a dire assessment of US economic prospects and concerns grew over a second wave of Covid-19 infections.
European stocks slipped in morning trading. London’s FTSE 100 was on track for its worst day in a month as it fell 2.5 per cent, while Germany’s Xetra Dax slid 2.6 per cent. A 2.4 per cent drop set the regional benchmark Stoxx Europe 600 index up for a fourth day of declines.
The halt to the rally in global stock markets came after the US Federal Reserve said the world’s largest economy faced a long path to recovery from the coronavirus pandemic. Nearly all of the central bank’s top officials expect to keep interest rates close to zero until the end of 2022.
Wall Street futures fell, with the S&P 500 facing losses of 1.5 per cent at the opening bell in New York.
“The Fed remains deeply concerned about the trajectory of the recovery,” said Anna Stupnytska, head of global macro at Fidelity International. She added that “risks related to subsequent waves of infection, the upcoming elections, weak global recovery and trade tensions” would probably complicate the path to recovery.
Jay Powell, the Fed chairman, said he was “not even thinking about thinking about raising rates” and added he was concerned that the jobs market might struggle to recover even as lockdown restrictions were eased.
“Powell is trying to send a strong signal . . . that the Fed is going to keep policy very loose for a long time,” said James McCann, senior global economist at Aberdeen Standard Investment. “That’s a good start but it needs to really do all it can — and much more than it is doing currently — to avoid a repeat of the tepid recovery after the financial crisis.”
Concerns over another wave of infections, particularly in the US, have dented sentiment, analysts said. States across the west and south, which loosened their lockdowns weeks ago, are seeing a sudden jump in new cases.
Another outbreak could pose a significant threat to a global stock rally in which US markets all but erased losses since pandemic fears first burst through to markets in the first quarter.
Shares that are sensitive to renewed health concerns led the declines in Europe, with the Stoxx Europe travel and leisure sector falling nearly 4.5 per cent. Carnival, Lufthansa and Cineworld were among the region’s biggest fallers.
Richard McGuire, a strategist at Rabobank, said markets had been largely ignoring the “reality that a second wave could crush signs of economic progress being made in some countries as they open up”.
Shares in Asia-Pacific fell, led lower by a 3 per cent drop on Australia’s S&P/ASX 200, and Japan’s benchmark Topix, which slipped 2.2 per cent.
Uncertainty about the speed of a global recovery weighed on international currencies, with the pound down 0.4 per cent at $1.269 and the Australian dollar dropping 0.9 per cent to $0.6933.
In Hong Kong, shares in NetEase rose 8.7 per cent on their first day of trading after a secondary listing for the Chinese tech company. NetEase is the latest homecoming listing for Hong Kong’s stock exchange as Washington tries to force Chinese companies that do not comply with US accounting practices to delist in New York.
Oil prices were under pressure after weekly US data showed crude inventories rose to a record high. Brent crude, the international benchmark, fell 3.3 per cent to $40.35 a barrel, while US marker West Texas Intermediate dropped 3.7 per cent to $38.10.