Wall Street followed European and Asian bourses lower as hopes for a quick economic recovery from the coronavirus crisis faded and figures showed that almost 3m more Americans filed for unemployment benefits last week.
The S&P 500 dropped almost 1 per cent when Wall Street opened, a day after Jay Powell, chair of the US Federal Reserve, warned that a US “recovery may take some time to gather momentum”. The tech-heavy Nasdaq Composite slipped 0.7 per cent.
New figures released by the US labour department on Thursday showed 2.98m Americans filed for unemployment benefits for the first time last week, taking the total to 36m in eight weeks.
“Hard on the heels of . . . Powell’s downbeat comments on the US economy come initial jobless claims that are worse than expectations,” said Neil Birrell, chief investment officer at Premier Miton. “Equities have been struggling since Powell spoke and there is nothing in these numbers to provide respite.”
Mr Powell’s bleak prognosis was echoed by Bank of England governor Andrew Bailey, who said during a Financial Times conference that there would be “some scarring” in the UK economy from the crisis, although it is uncertain how much.
The gloomy remarks come at a time when optimism about the relaxation of lockdowns across Europe is tempered by fresh virus outbreaks in countries such as South Korea and China.
In Europe, London’s FTSE 100 tumbled 3.3 per cent, while Frankfurt’s Xetra Dax fell 2.7 per cent and the region-wide Stoxx Europe 600 dropped 2.7 per cent.
Traders have also had to contend with a re-emergence of tensions between the US and China. President Donald Trump this week ordered the US government’s main pension fund not to invest in Chinese stocks, with officials citing the risk of sanctions over China’s handling of coronavirus. Beijing warned Washington against a financial fight.
“Given the political incentive, Mr Trump may not be bluffing when he threatens to impose more tariffs as the ‘ultimate way’ to make China pay for the cost on America of the coronavirus outbreak,” said Chi Lo, Greater China economist at BNP Paribas Asset Management.
The US dollar has strengthened as market sentiment has turned sour.
“The Fed poured cold water on the notion of a pivot towards negative interest rate policy . . .[and] the market has started to rethink the risks surrounding US-China trade tensions,” said Mark McCormick, global head of FX Strategy at TD Securities. “This backdrop reinforces our bullish USD stance.”
Hong Kong’s benchmark Hang Seng fell 1.5 per cent, while Japan’s Topix index closed down 1.9 per cent. Australia’s S&P/ASX 200 shed 1.7 per cent, after the announcement that the country’s unemployment rate had jumped to 6.2 per cent, the highest level in five years.
South Korea’s Kospi index dropped 0.8 per cent after at least 120 people were confirmed as infected with Covid-19 this week in an outbreak linked to a nightlife district in Seoul.
Oil prices rose after the International Energy Agency predicted that the drop in demand for crude this year would not be as severe as initially thought and supply is expected to drop to a nine-year low.
Brent crude, the international benchmark, was up 3.1 per cent to $30.09 per barrel, while West Texas Intermediate, the US marker, rose 3.2 per cent to $26.09 a barrel.
Additional reporting by Daniel Shane in Hong Kong