Global stocks slip on fears of coronavirus resurgence

Global stocks slipped on Thursday as rising coronavirus cases and geopolitical flare ups weighed on investors.

In early trading in Asia-Pacific, Japan’s Topix index fell 0.5 per cent while Australia’s S&P/ASX 200 and South Korea’s Kospi both shed 0.7 per cent. Trading in mainland China and Hong Kong begins later in the morning, with futures trading for the latter indicating a fall of 0.2 per cent.

Overnight on Wall Street, the S&P 500 closed down 0.4 per cent as traders weighed up the significance of Covid-19 outbreaks in the US and China. 

Futures trading on Thursday suggested further falls in US and UK equities when these markets open later in the day, tipping the S&P 500 and FTSE 100 to open 0.8 per cent and 1 per cent lower, respectively. 

Investors have become nervous after several US states reported increases in the number of coronavirus infections, while officials in Beijing have also been attempting to contain a fresh outbreak. These developments have raised concerns that authorities may have to implement new lockdown measures, damping recoveries from the pandemic in the world’s two biggest economies.

Jay Powell, the Federal Reserve chairman, testified on Capitol Hill for a second day on Wednesday, warning Congress of significant uncertainty surrounding the US recovery

Optimism in equity markets, which have rallied powerfully in recent weeks, is also being challenged by geopolitical scares. Investors are closely watching an escalation in tensions on the Korean peninsula and the fallout of deadly clashes between Indian and Chinese troops in the Himalayas.

Some analysts suggested that concerns over a Covid-19 resurgence may be overdone. 

“Although worries about second waves of coronavirus are likely to persist in the coming months, we do not expect such concerns to weigh on equity prices for long,” said John Higgins, chief markets economist at Capital Economics. 

“This view rests on an assumption that there will be localised outbreaks, rather than second waves, in response to which any reimposition of lockdown measures will be limited. If so, the economic effects should also be contained,” he added.

Concerns over the possibility of a second wave of the pandemic weighed on other asset classes. West Texas Intermediate, the US oil benchmark, dropped 1.6 per cent to $37.35. Data released overnight showed US oil output had fallen to its lowest level in two years.

The yield on US 10-year Treasuries, which are viewed by investors as a haven during times of uncertainty, fell 0.02 percentage points to 0.722 per cent. Bond prices rise as yields fall. 

Japan’s yen, another haven, edged 0.2 per cent higher to ¥106.83 per dollar, or its highest level in more than a month.