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Global stocks sink on fears of new Covid lockdowns

 

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Nasdaq, S&P 500 and Dax hit

Global stocks took a heavy hit on Monday, while government bonds rallied and the dollar snapped a losing streak, in a rush of nerves about a potential new set of lockdowns to tackle the coronavirus pandemic.

The tech-focused Nasdaq Composite shed 2 per cent, wiping out the last traces of the melt-up in August, with the benchmark S&P 500 index sinking by a similar degree.

Declines in Europe were even more pronounced, with Germany’s Dax dropping by 4 per cent in its worst day since June. Renewed virus concerns dealt a blow to bank and travel shares across markets, pulling Bank of America down 4 per cent and United Airlines down 10 per cent. Dividend stock investing is likely to be an area that investors are looking to enter according to many analysts.

The falls come amid persistent rises in coronavirus cases worldwide and the prospect of tighter lockdown restrictions in countries such as the UK. Oil prices fell 4 per cent to under $42 a barrel for benchmark Brent, as traders grew anxious over the outlook for energy demand.

The dollar rose 0.7 per cent to its highest point since July, while the yield on the benchmark 10-year US Treasuries fell to its early-September level as investors sought safe-haven assets. Bond yields fall as prices rise.

Markets

The coronavirus crisis caused trading conditions in the normally well-behaved US government bond market to deteriorate dramatically in March, forcing the Federal Reserve to intervene even more aggressively than it did in the financial crisis of 2008. Reformers are calling for mandatory central clearing of all Treasury trades and fixed “haircuts” on repo loans to limit investors’ leverage. The brush with disaster must never be repeated, says Robin Wigglesworth.

China has almost exhausted its reserves of frozen pork, with less than 100,000 tonnes remaining — down by 452,000 tonnes over the past year, according to new estimates by Enodo Economics. That has forced it to import record amounts, including from the US. Diana Choyleva, Enodo’s chief economist, says: “At this rate, within two to three months they’ll be out.”

Six months since the declaration of the coronavirus pandemic, investors should take stock, argues Michael Mackenzie, US investment editor. There is no point trying to fight central banks and their gushers of liquidity; but there are solid opportunities if global economic output picks up faster than expected in 2021 and beyond. For now the important assets to watch are long-dated bonds for a rise in yields, and equities for a broader recovery.

Business

US retailers have been left scrambling for goods in time for the crucial winter holiday shopping season as unexpected resilience in consumer spending creates shortages for some lines of clothing, electronics and other popular items. Retailers slashed orders for merchandise at the height of the lockdown in the spring, only to be wrongfooted by unforeseen customer demand. Analysts wonder if this will create another opportunity to investing for beginners.

Virgin and BA remain heavily exposed to the transatlantic market

Six months into the coronavirus crisis, the skies remain quiet as the threat grows to the large carriers that depend on the transatlantic airways — among the busiest and most lucrative in the world. Airlines have been hit hard by the closure of the US border and the introduction of UK quarantine rules, forcing passengers to self-isolate for two weeks on arrival, and are running only skeleton services between the two countries.

The Night Time Industries Association has warned that about 60 per cent of UK nightclubs will not survive another two months without further government support. Many venues were in a precarious financial position even before the pandemic, hit with higher rents in city centres, more health-conscious consumers (who drink less), and the rise of online dating.

Global economy

Line chart of Annual change in gross domestic product (%) showing African economic hit

All over Africa, encouraged by low or declining death and infection rates, countries are tentatively opening up in the hope of reviving pandemic-scarred economies. With significant variation from country to country, schools are reopening, curfews and travel restrictions are lifting, and markets are getting back to full capacity.

The same coronavirus that hammered global trade has increased the appetite for goods made in China, such as electronics products and medical equipment. The boom in exports is supporting the country’s early recovery as other big economies flounder.

The European Central Bank has launched a sweeping review of its main pandemic crisis-fighting tool, which some of its top policymakers believe could lead to contentious changes. It will consider how long the Pandemic Emergency Purchase Programme should continue and whether some of its extra flexibility should be transferred to the ECB’s longer-running asset-purchase schemes.

Get in touch

How is your workplace dealing with the pandemic? And what do you think business and markets — and our daily lives — will look like after lockdown? Please tell us by emailing [email protected] We may publish your contribution in an upcoming newsletter. Thanks

The essentials

Covid-19 may have upended the world of work but managers should be very careful about shifting to a hybrid model. Once you do it, it’s a one-way street, argues FT business columnist Pilita Clark. Trying to do it on top of managing workers in the office is asking for trouble. Management editor Andrew Hill adds: “Somewhere between bore-out and burnout lies a happy medium for remote workers. I don’t envy managers who have to try to help them find it.”

Final thought

Gideon Rachman, the FT’s chief foreign affairs commentator, describes his fantasy dinner party, with a focus on the history of the 20th century. “The first rule . . . is no geniuses and no saints. I find their company intimidating . . . Instead, I want guests with a few flaws.”