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Several districts of the Chinese capital of Beijing closed
schools and ordered people to be tested after an unexpected rise
in infections linked to the biggest wholesale food market in
Asia.
This latest development, added to rising infections and
hospitalisations in several U.S. states, has led investors to
reassess the chances of a swift V-shaped recovery.
"I am convinced that if cases continue to rise again, market
participants will clearly re-evaluate market valuations and
their assumptions", said Stephane Ekolo, an equity strategist at
TFS Derivatives in London.
"Market are pricing a too-optimistic recovery, in my opinion,
and there could be a reality check coming rather sooner than
later."
After falling over 2.5% in early trading, the pan-European STOXX
600 limited its losses to 0.5% with most sectors and regional
markets trading in the red after heavy losses in Asia.
Japan's Nikkei fell 3.5% and South Korean shares tumbled 4.8%.
Futures for the S&P 500 pared some losses but were still down
1.8%.
The retreats follows a global rally since late March, fuelled by
central bank and fiscal stimulus and optimism about countries
gradually lifting lockdowns.
A number of analysts, however, have warned about a possible
disconnect between anticipation of a dire global recession and
the optimism in stock markets, with the Nasdaq hitting record
highs even as U.S. unemployment has surged.
"The market was pricing in a V-shape recovery. This can't be the
case if there is indeed a second wave, the best scenario is
U-shaped", said Steven Leung, executive director for
institutional sales at Uob Kay Hian.
"There will be a bigger impact this time on all those stocks
tied to the expected economic recovery such as travel, hotels,
if we see a second wave."
Euro zone bond yields edged down as investors bought safer
assets such as government bonds.
Germany's 10-year bond yield was near a three-week lows at
-0.45%.
Brent crude futures fell 0.7%, to $38.47 a barrel. U.S. West
Texas Intermediate crude futures were down 1.7% at $35.65 a
barrel.
Oil investors await OPEC+ committee meetings later this week
that will advise the producer group and its allies on output
cuts. [O/R]
In currencies, the dollar index rose to 97.20, flirting with a
10-day high, while risk-sensitive currencies such as the
Norwegian and Swedish crowns suffered, trading around two-weeks
lows.
The euro slipped 0.1% against the dollar to $1.1249
Worldwide coronavirus cases have crossed 7.86 million with
430,501 deaths, according to a Reuters tally.
(Reporting by Julien Ponthus, editing by Larry King and Nick
Macfie)
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