Stock and crude oil markets dropped on Thursday after data laid bare the enormous damage the coronavirus pandemic has wrought on the US and German economies, and raised fears that a recovery may be stalling.
The dollar fell and demand for havens such as US and UK government debt rose after the American economy recorded its largest contraction in postwar history. Gross domestic product shrank at an annualised rate of 32.9 per cent in the second quarter, or 9.5 per cent quarter-on-quarter.
A separate report showed the number of Americans filing for first-time jobless benefits rose for the second week in a row. The jobs data are “likely to add to concerns in markets about the potential for a double dip”, said Jim O’Sullivan, a strategist at TD Securities, although he cautioned that seasonal adjustments may have exaggerated the increase in unemployment claims.
Wall Street’s benchmark S&P 500 index closed down 0.4 per cent in New York, led by declines for energy stocks such as ConocoPhillips, which fell 5.8 per cent. Bourses across Europe sustained heavier selling, with the composite Stoxx 600 index down 2.2 per cent.
Germany’s Dax was the continent’s worst performer, down 3.5 per cent, after data revealed its economy contracted by a sharper than forecast 10.1 per cent in the second quarter. France’s CAC 40 was down 2.1 per cent while the UK FTSE 100 was off 2.3 per cent.
European equities were also hit by a run of downbeat corporate earnings. Volkswagen cut its final dividend by more than a third and the UK’s Lloyds Banking Group put aside a further £2.4bn to deal with expected customer defaults and said the lockdown had hit the British economy much more than it had expected.
Some investors cautioned against reading too much into historic data. David Bahnsen, chief investment officer at Bahnsen Group, which has over $2.25bn in assets under management, said the rise in jobless claims showed the continued fragility of the US economy but he did not expect the number to rise again.
“The stock market has to look forward and most economic data looks backwards. Investors should be prepared for a choppy process of data digestion, but not be surprised that the market feels the future is better than the present and that unprecedented stimulus and liquidity exist to drive valuations,” he said.
Crude oil fell on renewed fears of weak demand. Brent, the international benchmark, slid 1.4 per cent to $43.14 while WTI, the US benchmark, fell 2.6 per cent to $40.16.
The dollar index, which tracks the US currency against half a dozen peers, fell 0.5 per cent on concerns about the impact of coronavirus on the US economy. The pound rose above $1.30 against the greenback for the first extended period since March’s market turmoil.
Global bond markets rallied as investors sought safe…