US equities recorded the worst single-day sell-off since April on rising fears that a second wave of Covid-10 contagion would push the economies to shut down again. The Dow Jones slumped 6.90%, as Nasdaq erased 5.27% respectively at the close. The S&P500 (-5.89%) hit the critical 3000 support. Airlines, banks, energy and even technology stocks were heavily hit.
The US dollar recovered, as the US treasuries gained on the back of increased capital inflows towards safe haven assets. The US 10-year yield slipped below 0.70%.
US Treasury Secretary Mnuchin said the economy should remain open in case of a renewed surge in cases, but the absence of confinement measures could have more severe medium to long-term implications for the public health and the economy. Therefore, it is not sure that such decision would boost the market sentiment.
Meanwhile, the weekly jobless claims in the US rose 1.5 million last week, reminding investors that the recovery we have seen in equity prices so far was meaningfully decoupled from the reality.
Equities in Asia followed up on US losses, but the sell-off slowed into the afternoon session. The Nikkei was 0.80% down after recovering a 3% slump at the open amid the industrial production fell 9.8% in April, more than analyst expectations. Hang Seng (-1.30%) and Shanghai’s Composite (-0.38%) edged lower, as the Australian ASX 200 (-2.00%) and the Korean Kospi (-2.35%) were among the most severely.
US futures rebounded more than 1% in the overnight trading session on expectation that the latest acceleration in new Covid-19 cases in the US may not necessarily mean that the second wave is knocking on the door. Hence, we could see some dip-buying in S&P500 near the 3000 level.
But activity in European futures hint at further weakness before the weekly closing bell. A renewed slump in energy and financial stocks could drag the FTSE 100 below the 6000p mark for the first time in three weeks.
