Coronavirus: Europe slide on rising US-China tensions and Fed warning

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK

European stock markets endured another day of heavy losses on Thursday as concerns about the economic impact of the coronavirus crisis continued.

Major indexes were down over 3% at the low points of the session. Stocks managed to make up some ground in late trade but still closed firmly in the red.

The FTSE 100 (^FTSE) closed down 2.7%, the DAX (^GDAXI) shed 1.9% in Frankfurt, and the CAC 40 (^FCHI) lost 1.6% in Paris. It marked the fourth straight day of losses for Europe’s major indexes.

Analysts said the sell-off has been driven by fears of a second peak in COVID-19 infections as lockdowns around the world begin to ease.

In the UK, where the FTSE 100 suffered the heaviest losses, forecasts of a £300bn government deficit this year did little to help the gloomy mood.

Investor confidence was also dented by warning from US Federal Reserve chair Powell on Wednesday that the US may need additional stimulus measures to support its economy. The Fed chair said the US could face an “extended period” of weak growth and stagnant incomes.

“There is a growing belief among analysts that the vast central bank and government stimulus packages announced due to the COVID-19 pandemic is not enough to compensate for the bearish factors weighing on the markets,” said Fawad Razaqzada, an analyst at ThinkMarkets.

“Unemployment has skyrocketed across the globe and companies are filing for bankruptcies left right and centre.”

A demonstrator holds a sign reading 'Boycott China' during the protest at the State Capitol in Salem, Oregon, United States on 2 May. (John Rudoff/Anadolu Agency via Getty Images)

There were also signs of further tension between the US and China. Donald Trump tweeted on Wednesday evening: “We just made a great Trade Deal, the ink was barely dry, and the World was hit by the Plague from China. 100 Trade Deals wouldn’t make up the difference – and all those innocent lives lost!”

Jim Reid, a strategist at Deutsche Bank, wrote in a note to clients: “We just about managed to cope with a downbeat assessment from Fed Chair Powell but couldn’t after additional evidence that the US/China relationship is souring further.”

US markets sold off in New York. The S&P 500 (^GSPC) was down 0.6% by the time Europe closed, while the Dow Jones Industrial Average (^DJI) slipped by 0.2%, and the Nasdaq (^IXIC) declined by 0.9%.

Almost 3m more Americans filed for unemployment benefits over the last week, official figured showed on Thursday. That was higher than the 2.5m analysts had expected and takes the total number of unemployment claims filed over the last two months to 36m.

Overnight in Asia, Japan’s Nikkei (^N225) closed down 1.7%, the Hong Kong Hang Seng (^HSI) fell 1.5%, the Shanghai Composite Index (000001.SS) declined by 0.9%, and South Korea’s KOSPI (^KOSPI) slipped by 0.8%.

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