European stock markets failed to mount a rebound yesterday, after dropping sharply the day before on fears that a coronavirus resurgence will force fresh economically painful containment measures.
Traders have also given up almost any hope for a new US stimulus package being passed before next Tuesday’s election, with Democrats and Republicans blaming each other, though there are still expectations a new deal will be agreed afterwards.
The prospects of US lawmakers approving another round of stimulus has kept stock markets buoyant for weeks, but the US Senate wrapped up its session on Monday.
“This means that investor sentiment will be dominated by the resurgent coronavirus until at least the election day, as well company earnings,” said Fawad Razaqzada, a market analyst with ThinkMarkets.
On Wall Street, the Dow was down 0.3% in midday trade, a day after it suffered its worst session since early September, dropping more than 2%.
The Nasdaq Composite was in positive territory thanks to gains in the tech sector, driven by a blockbuster $35bn acquisition by Advanced Micro Devices, a leading maker of computer chips.
European stocks added to hefty losses on Monday as more nations move towards imposing tougher restrictions and even lockdowns in order to slow the spread of coronavirus but which would cause even more economic pain.
London ended the day down 1.1%, while Frankfurt shed 0.9% and Paris lost 1.8%. Asia’s leading indices closed mixed.
Oil prices rebounded after steep falls Monday, while the dollar dropped versus its main rivals.
Further lockdowns could trigger widespread job losses as many companies can no longer hold out, analysts fear.
“The second and third wave spread of Covid-19 is possibly triggering a point of no return for some industries as the economic damage borders on irreversible,” said Axi strategist Stephen Innes.
With an eye on next week’s vote, he added: “We should expect price action to remain choppy in the days ahead, with investors very reluctant to put on any significant risk ahead of what promises to be a headline heavy week or two.”
With the pandemic fuelling demand for computers and video game consoles as people rely on the internet to work, learn, and play more at home, Advanced Micro Devices announced a deal to buy computer chip-making rival Xilinx for $35bn.
Shares in AMD fell 3.6% even though the company also said that third-quarter profit more than tripled from a year ago to $390mn as revenue grew 56% to $2.8bn, beating expectations.
A number of leading US companies posted earnings reports that beat expectations, including Caterpillar, 3M, Pfizer and Merck.
But analysts at Charles Schwab brokerage said that, at this point for investors, “actual earnings numbers may be less important than what corporate leaders say about their expectations” for the future.
Given the amount of uncertainty, many companies are not providing full-year guidance on their earnings, however.
Uncertainty over a Brexit trade deal and concerns about the financial fallout from coronavirus-related restrictions have pressured British markets this month, with data also pointing towards a faltering economic recovery.
The latest industry survey showed Britain’s retail sales this month fell to the lowest level since June, after hitting an 18-month high in September.
In the latest round of restrictions, Warrington in northwest England was placed on the highest Tier 3 alert level, while Nottingham in central England and three nearby towns would have similar restrictions from tomorrow.
“In recent months, the stock market rally has been driven by easy monetary policy, fiscal stimulus measures and positive developments in the fight against the Covid-19 pandemic,” said Milan Cutkovic, market analyst at Axi.
“Removing one of those pillars could leave markets on shaky ground.”
The Bank of England is expected to ramp up the size of its asset purchase programme by a further 100bn pounds on November 5 to support a struggling economy, a Reuters poll of economists found.
Meanwhile, the European Commission said the European Union and Britain are engaging intensively to clinch a Brexit deal on their future relationship.
In a bright spot, Asia-focussed HSBC Holdings Plc jumped 3.4% after it signalled a pandemic-induced overhaul of its business model.
Bloomsbury Publishing Plc gained 18.1% after the Harry Potter publisher posted higher first-half profit and resumed dividend payments.
In London, the FTSE 100 closed down 1.1% to 5,728.99 points; Frankfurt – DAX 30 ended down 0.9% to 12,063.57 points; Paris – CAC 40 closed down 1.8% to 4,730.66 points and EURO STOXX 50 ended down 0.9% to 3,077.31 points yesterday.
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