Fear of coronavirus second wave stalks stock markets

LONDON/TOKYO (Reuters) – Global stocks fell on Wednesday as fears about a second wave of coronavirus infections gripped financial markets.

Investors, many facing steep losses caused by the pandemic-driven shakeout in assets over the past few months, have also had to contend with renewed U.S.-China trade tensions.

MSCI’s index of global shares was down 0.2%. The pan-European STOXX 600 index slipped 1.3%. Banks acted as a drag after a number of negative updates.

Shares in Deutsche Bank fell 3.7% after it was reported that top managers will waive one month of fixed pay in an effort to cut costs. Commerzbank and the Netherland’s ABN Amro slumped following first-quarter losses.

“Earning season is largely behind us and we have entered the phase two of COVID-19 as de-confinement of economies begins, and that is creating a lot of uncertainties on a daily basis, which is weighing on markets,” said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners.

“We don’t think this is the start of a new correction. Markets went too far, too fast and this is the consolidation.”

In the UK, the blue-chip FTSE 100 shed 0.9% as data showed a nationwide shutdown crushed retail sales in April. Other data showed first-quarter gross domestic product shrank by 2% from the last quarter of 2019.

“We are coming into a testing period for risk assets as there’ll be lots of bad data looking back and looks of bad data looking forward and the reality will be that it will be a much less dramatic recovery than people had been hoping for,” said James Athey, investment director, Aberdeen Standard Investments.

MSCI’s broadest index of Asia-Pacific shares outside Japan erased an early decline and rose 0.3%. U.S. stock futures, the S&P 500 e-minis, added 0.5%.

Treasury yields inched lower amid caution before a speech by U.S. Federal Reserve Chairman Jerome Powell and rising speculation the United States could one day adopt negative interest rates.

Leading U.S. infectious disease expert Anthony Fauci on Tuesday warned lawmakers that a premature lifting of lockdowns could lead to additional outbreaks of the deadly coronavirus, which has killed 80,000 Americans and brought the economy to its knees.

Fauci’s comments hammered Wall Street stocks overnight, underlining fragile investor sentiment, which has in recent sessions swung between optimism over some easing in lockdowns globally and anxiety about a fresh spike in virus cases.

The mood was further soured by proposed legislation by a leading U.S. Republican senator that would authorize President Donald Trump to impose sanctions on China if it fails to give a full account of events leading to the coronavirus outbreak.

Stock markets had rebound in recent weeks as the spread of the novel coronavirus slowed in some countries in Asia and Europe, while parts of the U.S. economy and Europe began to re-open after weeks of lockdowns. However, some investors worry that a rush to re-open factories and shops may be premature.

The New Zealand dollar slumped to a six-month low after the country’s central bank doubled its quantitative easing programme and said it has asked commercial banks to be ready for negative interest rates by year’s end.

The U.S. dollar stabilised below a three-week high as traders braced for Powell’s speech, which will cover economic issues and may offer hints on whether negative rates are a policy option.

The yield on benchmark 10-year Treasury notes traded at 0.6671%. The two-year yield stood at 0.1609%, above a record low of 0.1050% hit on Friday.

In Europe, the German 10-year government bond yield, which had risen around 8 basis points since May 4, changed direction and fell around 3 bps as demand for the safe debt increased.

The Italian 10-year government bond yield, which is the proxy for riskier peripheral European bonds, rose 2 bps.

Trump on Tuesday again pushed the Fed to adopt negative rates, a hot topic in financial markets since last week when U.S. money markets started to price in a chance of rates below zero.

Oil markets, which have plummeted this year due to a combination of a collapse in demand and a supply glut, regained some ground after earlier losses. U.S. crude edged up 0.2% to $25.83 a barrel. Brent crude was down 0.2% to $29.93 per barrel.

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