The United States has recorded over 2 million COVID cases and predictions of a spike in coronavirus cases harming economic recovery from various experts has sent some fears across financial markets.
Invariably, the global decline came in a day after America’s central bank warned the US faced a long road to economic recovery. Predominantly in the US, the three main financial indexes saw their worst days in weeks with the Dow Jones Industrial Average down almost 7%.
According to BBC News, the falls followed weeks-long rally that had helped shares recover some ground from March lows. It also stated that, the Energy and travel stocks were among the biggest losers, as oil prices also took a hit.
Earlier, European and Asian shares also dropped, with the UK’s FTSE 100 sinking about 4%. In Germany as well, the Dax fell 4.4% while in France the CAC 40 ended 4.4% lower. Societe Generale’s European equity strategist, Roland Kaloyan was of the opinion that,
“Government, companies and people would be better prepared for a second wave than for the first one. But the problem is there is limit to governments injecting money”.
Last week’s surprise report showing US employers had restarted hiring in May helped to push the NASDAQ to new highs, albeit the recovery remains tentative. On Thursday, the US Labour Department reported that another 1.5 million people had filed new unemployment claims last week, and that more than 30 million continue to collect the benefits.
The debilitating effects of the pandemic on these financial markets are palpable. US Federal Reserve on Wednesday said that the unemployment rate could remain above 9% at the end of the year- close to the worst levels of the financial crisis.
In a press conference, the Fed chairman Jerome Powell warned that assessment may prove optimistic, should infection and hospitalization rates rise. Several states that have moved to reopen, including Arizona and South Carolina, have seen an increase in cases in recent days.
“It could hurt the recovery, even if you don’t have a national level pandemic. Just a series of local ones, of local spikes could have the effects of undermining people’s confidence in travelling, in restaurants and in entertainment. It would not be a positive development”.
US Treasury Secretary, Steven Mnuchin has said he did not want to see a return of the lockdown that kept the world’s largest economy frozen for weeks this spring. But despite his hope, economic experts have warned that people will stay home voluntarily if they are afraid of becoming ill.
In December, Fed policy makers said they expected the US economy to grow about 2% this year and the unemployment rate to remain around 3.5%. But the pandemic has drastically rewritten that outlook prompting the loss of more than 20 million jobs in March and April in the US alone.
The Dow dropped 1, 861.8 points or 6.9% to end at 25, 128, while the S&P 500 slid 188 points or 5.9% to 3,002.1. Similarly, the Nasdaq closed 527.6 points lower or 5.2% at 9, 492.7.