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Fears of second virus outbreak hit shares

commuters in NYCImage copyright
AFP

Financial markets have tumbled amid fears that an uptick in coronavirus cases will hurt the economic recovery.

In the US, the three main financial indexes saw their worst day in weeks, with the Dow Jones Industrial Average down almost 7%.

The decline came a day after America’s central bank said the US faces a long road to recovery.

They follow a weeks-long rally that had helped shares recover some ground from March lows.

Energy and travel stocks were among the biggest losers, as oil prices also took a hit.

Earlier, European and Asian shares also dropped, with the UK’s FTSE 100 sinking about 4%. In Germany, the Dax fell 4.4%, while in France the CAC 40 ended 4.4% lower.

Slow recovery

Share prices had rallied amid hopes that the economy will rebound, as authorities loosen the controls put in place to try to slow the spread of the virus.

Last week’s surprise report showing US employers had restarted hiring in May had helped to push the Nasdaq to new highs.

But on Thursday, the US Labor Department reported that another 1.5 million people had filed new unemployment claims last week. More than 30 million continue to collect the benefits, it said.

The unemployment rate could remain above 9% at the end of the year – close to the worst level of the financial crisis, policymakers at the Federal Reserve said on Wednesday.

Bank chair Jerome Powell warned that assessment may prove optimistic, should infection and hospitalisation rates worsen.

“It could hurt the recovery, even if you don’t have a national level pandemic. Just a series of local ones, of local spikes, could have the effect of undermining people’s confidence in travelling, in restaurants and in entertainment,” he said. “It would not be a positive development.”

His comments came amid a rise in coronavirus cases in several US states, including Arizona and South Carolina.

The Dow dropped 1,861.8 points or 6.9% to end at 25,128, while the S&P 500 slid 188 points or 5.9% to 3,002.1. The Nasdaq closed 527.6 points lower or 5.2% at 9,492.7.

Treasury Secretary Steven Mnuchin said he did not want to see a return of the lockdowns that kept the world’s largest economy frozen for weeks this spring.

But economists have warned that people will stay home voluntarily if they are afraid of becoming ill.

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