U.S. stocks are falling in early trading Tuesday as expanding coronavirus outbreaks dim hopes for a speedy recovery. The S&P 500 and Dow Jones Industrial Average followed benchmarks in France, Germany and Britain lower after the European Union slashed its forecasts for economic growth in 2020. Investors worry that recovery from the global recession and the lockdowns on businesses will take longer than expected. Stocks also fell in Tokyo, Seoul and Hong Kong, while the Shanghai Composite index advanced. Precious metals and crude oil prices also fell, as did the 10-year Treasury yield.
World stock markets were mostly lower Tuesday as spreading coronavirus outbreaks dimmed hopes for a global recovery, despite an overnight rally in tech shares that pushed the Nasdaq to another record high.
The EU executive meanwhile lowered its forecasts for economic growth this year and predicted a slower rebound in 2021, highlighting how the recovery from the global recession and the lockdowns on business will take longer than expected.
U.S. shares were set to drift lower, with Dow futures falling 0.9% and S&P 500 futures sliding 0.8%. In Europe, France’s CAC 40 fell 0.9% to 5,035, while Germany’s DAX slipped 1.1% to 12,598. Britain’s FTSE 100 dropped 1.2% to 6,210.
Government stimulus and hopes for an economic turnaround have kept investor sentiment upbeat recently, Prakash Sakpal and Nicholas Mapa, senior economists at ING, said in a report after the Nasdaq hit a record. But pandemic uncertainties are lingering, and the situation is fragile.
“Investors continue to look past the sustained pickup in new infections in the southern part of the U.S. as well as other parts of the world like Israel, but a sustained influx of downbeat reports could change sentiment,” their report said.
In Asian trading, Japan’s benchmark Nikkei 225 dropped 0.4% to finish at 22,614.69 and South Korea’s Kospi gave up 1.1% to 2,164.17. Australia’s S&P/ASX 200 was little changed, edging less than 0.1% lower to 6,012.90. Hong Kong’s Hang Seng shed 1.5% to 25,946.86, while the Shanghai Composite gained 0.4% to 3,345.34.
Market sentiment took a hit after the executive body of the 27-nation EU said the bloc’s economy is forecast to contract 8.3% this year, before growing 5.8% in 2021. In the previous forecasts released in May, GDP was forecast to contract about 7.5% this year and to bounce back 6% next year.
Industrial production in Germany rebounded in May, but less than expected and remains far below levels from before the pandemic caused factories to close.
While investors have focused on hopes for a robust bounce back in the global economy, the worry is that pandemic will continue worsening, with hotspots stretching across the U.S. South and West. Cities in major economies like Australia and Britain have seen pockets of new contagions, requiring new lockdown measures. That trend is likely to keep shoppers and businesses from spending.
The worst-case scenario for markets is that governments resume more widespread lockdowns implemented during the spring and choke off the budding economic recovery. Either way, many economists expect it will take years for the global economy to return to the level of output it was at before the pandemic.
Benchmark U.S. crude oil lost 42 cents to $40.21 a barrel. It fell 2 cents to $40.63 a barrel Monday. Brent crude oil for September delivery fell 35 cents to $42.75 a barrel.
The dollar rose to 107.71 Japanese yen from 107.37 yen. The euro inched down to $1.1291 from $1.1309.