Global markets started the week on the back foot on Monday while oil prices slipped as fears of a second wave of coronavirus infections in China and a surge in cases in the United States sent investors scurrying for safe-haven assets such as gold.
The pan-European STOXX 600 fell 2.5 percent with all sectors and regional markets trading deep in the red after losses accelerated in the final hours of trading in Asia.
The key stock indices in London, Frankfurt and Paris were all down more than 2 percent in early European trade.
Earlier, Japan’s Nikkei fell 3.5 percent, and South Korean shares tumbled 4.8 percent.
Futures for the US’s S&P 500 also extended losses, shedding 2.9 percent.
In commodities, oil prices slipped, with Brent crude falling 2.7 percent to $37.69 a barrel while US crude fell 4.1 percent to $34.78. Gold rose 0.2 percent to $1,732.2 an ounce. Many investors see gold as a hedge against riskier assets such as stocks during times of economic uncertainty.
The fall in share prices follows a strong rally in global equities since late March, fuelled by central bank and fiscal stimulus and optimism as countries gradually lifted restrictions put in place to curb the spread of the novel coronavirus.
However, risk sentiment took a knock after Beijing recorded dozens of new COVID-19 cases in recent days, all linked to a large wholesale food market.
China’s vice premier Sun Chunlan called for “decisive measures” in Beijing as the capital moved to mass coronavirus testing after the spike. According to state media, the latest figures show 49 new cases in mainland China, 10 imported and 39 contracted locally – 36 of them in Beijing.
Investors are also fretting over a surge in cases in the US.
New coronavirus cases and hospitalizations in record numbers swept through more US states, including Florida and Texas, as most push ahead with reopening and President Donald Trump plans an indoor rally in Tulsa, Oklahoma.
Alabama reported a record number of new cases for the fourth day in a row on Sunday. Alaska, Arizona, Arkansas, California, Florida, North Carolina, Oklahoma and South Carolina all had record numbers of new cases in the past three days, according to a Reuters tally.
Another large coronavirus outbreak could roil financial markets, which had been rallying recently on hopes for economic recovery.
Some analysts were still hopeful Monday’s sell-off will be temporary.
“We assume that any second wave is likely to be more manageable than the first given earlier policy experience,” analysts at Morgan Stanley wrote in a note.
“Policy easing will also help Asia (excluding Japan) get back on its feet better.”
But Sharmila Whelan, deputy chief economist at research firm Aletheia Capital, says her outlook is far more pessimistic.
“As the collapse in global corporate profits this year thanks to government-mandated COVID-19 lockdowns translates to rising bankruptcies, job losses and [capital expenditure] cuts, we see the global economy being tipped into a profit-led recession and a 2-3 year long investment cycle downturn,” Whelan said in a note sent to Al Jazeera via the Smartkarma platform.
The Chinese yuan dipped in offshore trade to 7.0877 per dollar while the risk-sensitive currencies of Australia and New Zealand were also sold off. Both were last down 0.4 percent at $0.6855 and $0.6424, respectively.
China’s industrial output rose for a second straight month in May, expanding by 4.4 percent in May from a year earlier, the highest reading since December. But the gain was smaller than expected, suggesting the economy is still struggling to get back on track after the coronavirus crisis.
Retail sales fell for a fourth straight month. While the 2.8 percent drop was smaller than the 7.5 percent slump in April, it was larger than the 2.0 percent fall tipped by analysts. Heavy job losses and fears of a second wave of infections continue to make consumers cautious.
But Capital Economics said it sees signs of a recovery in China.
“We had previously thought that China’s economy wouldn’t return to positive year-on-year growth until [the third quarter of 2020]. But today’s data suggest that this milestone may be reached this quarter and we will be revisiting our [gross domestic product] forecasts shortly,” the firm’s China economist Martin Rasmussen said in a research note sent to Al Jazeera.
Elsewhere, the dollar was little changed at 107.46 yen.
Analysts said further tests awaited global markets this week, in particular whether re-opening hopes could still push equities higher.
Federal Reserve Chairman Jerome Powell is due to testify before Congress where “he may try to spin a more upbeat/hopeful outlook – but whether markets listen remains to be seen,” said Betashares chief economist David Bassanese.
Also of interest is US May retail sales figures due out on Tuesday, which are expected to bounce smartly after a slump in April.
“If the market can’t rally on retail sales it will be a strong signal that the initial ‘re-opening bounce’ has finally been priced,” Bassanese added.
“If so, that means going forward economic data – which will provide guideposts on the actual shape of the recovery – will start to matter again.”