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Stocks sink as COVID cases surge and restrictions tighten

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·4 min read

Watch: Virus fears sink European stocks

Stocks sold-off sharply on Monday, as traders around the world reacted to the worsening COVID-19 second wave in Europe and the US.

The weekend saw large increases in COVID-19 cases in the west and heightened restrictions introduced across much of Europe.

The US reported its highest ever daily total of new COVID-19 cases on Friday, hitting 83,757. The record tally was almost matched again on Saturday.

France recorded a new daily case high on Sunday, announcing 52,010 positive results over the previous 24 hours. A 9pm curfew covering two thirds of the country came into effect on Friday night.

On Sunday, Italy and Spain announced tighter restrictions to try and curb the spread of the virus, including business closures and curfews. A state of emergency has been declared in Spain.

Major stock markets across Europe fell over 1% at the open on Monday. US markets also opened firmly in the red before falling even lower.

MADRID, SPAIN - OCTOBER 25: People walk past a restaurant on the first night of a countrywide curfew on October 25, 2020 in Madrid, Spain. Spain has declared a national state of emergency and imposed a night-time curfew from 11pm to 6am in an effort to help control a new spike in coronavirus (COVID-19) infections. (Photo by Pablo Blazquez Dominguez/Getty Images)
People walk past a restaurant on the first night of a countrywide curfew on 25 October in Madrid, Spain. Photo: Pablo Blazquez Dominguez/Getty Images

“More lockdowns and mobility restrictions could hamper economic activity,” said Stephen Innes, chief global market strategist at Axi.

“When folks do not have jobs, they do not or cannot spend and unambiguously hurt economic growth on so many levels.”

Investors took some cheer from encouraging signs on the COVID-19 vaccine front. The Financial Times reported that an experimental vaccine being developed by the University of Oxford and AstraZeneca (AZN.L) was inducing an immune response in elderly patients, who are the most vulnerable group to the virus. AstraZeneca shares rose 1.8% in London.

However, a sell-off on Wall Street revived the day’s gloomy mood. Stocks opened firmly in the red in New York and steadily lost ground. The S&P 500 (^GSPC) was down 2.3% by the time trade finished in Europe, while the the Dow Jones (^DJI) had shed 2.9%, and the Nasdaq (^IXIC) was 2% lower.

READ MORE: German companies gloomy as COVID-19 infections surge

The FTSE 100 (^FTSE) closed down 1.1% in London, while the CAC 40 (^FCHI) fell 1.8% in Paris, the FTSE MIB (FTSEMIB.MI) lost 1.6% in Milan and the IBEX (^IBEX) shed 1.3% in Madrid.

Germany’s DAX (^GDAXI) was the worst performing major index on the day, closing down 3.6%. SAP (SAP.DE), Europe’s largest software company, weighed heavily. The German software giant saw its share price collapse 21.8% after cutting its guidance for full-year sales and profits.

The index was also hit by a private sector survey showing the first decline in German business confidence in five months.

BARCELONA, SPAIN - OCTOBER 25: Police officers stand on patrol on the first night of a countrywide curfew on October 25, 2020 in Barcelona, Spain. Spain has declared a national state of emergency and imposed a night-time curfew from 11pm to 6am in an effort to help control a new spike in coronavirus (COVID-19) infections. (Photo by Xavi Torrent/Getty Images)
Police officers stand on patrol on the first night of a countrywide curfew on 25 October in Barcelona, Spain. Photo: Xavi Torrent/Getty Images

Travel stocks were among the hardest globally. Travel agent Tui (TUI.L) slumped 9.5%, British Airways-owner IAG (IAG.L) fell 7.2%, and Lufthansa (LHE.DE) was 4.5% lower.

Expectations of declining international travel hit oil prices. Crude futures (CL=F) shed 3.2% and Brent (BZ=F) dropped 3.1%

READ MORE: Oil prices slide 3% on record coronavirus cases and Libyan production

While concerns about the pandemic dominated, uncertainty around possible additional US stimulus and the upcoming election added to investor anxiety.

“Everyone seems keen to cut back as fast as possible in order to sit out the election and any subsequent aftermath should the result not emerge immediately,” said Chris Beauchamp, chief market analyst at IG.

Stimulus talks continue to drag on in Washington, with little sign that a deal will be reached before next week’s US election.

READ MORE: SAP shares plunge to biggest intraday slump since 1999, wiping $35bn off its value

Polls over the weekend did not suggest any major change in the presidential race. Democratic candidate Joe Biden retains a strong lead over US president Donald Trump.

“The conventional market narrative is that Mr Biden will win the election (he's well ahead in the polls), perhaps winning control of both Houses as well, allowing him to ease fiscal policy, boosting the economy, the equity market and undermining the dollar,” Kit Juckes, global fixed income strategist at Societe Generale, wrote in a note sent to clients on Monday morning.

Asian markets were mixed overnight. Japan’s Nikkei (^N225) closed flat and the Shanghai Composite (000001.SS) lost 0.8%. The KOSPI (^KOSPI) gained 0.5% in South Korea, the Hong Kong Hang Seng (^HSI) rallied half a percent, and the Shenzen Component (399001.SZ) rose 0.5% in China.

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