US Market Open: New virus strain spooks markets

US markets are set to follow European indices sharply lower as a new strain of the coronavirus prompts fears over the global economic recovery.

Charts (5)

  • US markets are set to open sharply lower today, following the heavy losses seen by European indices.
  • Concerns that a new strain of the coronavirus could hamper the global economic recovery are overshadowing a breakthrough with the new US fiscal stimulus package.
  • In forex, the dollar has strengthened against both the pound and the euro as investors seek safer currencies.
  • Oil prices have fallen over 4% as the outlook for demand soured on virus fears.

US indices to open lower as virus fears kick-in 

The S&P 500 is called to open 1.9% lower at 3650.1 after ending last week at 3720.4.

The Dow Jones is set to open 1.7% lower at 29744.5 from 30253.5 at the close of play on Friday.

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European indices fall sharply

The Euro STOXX Index traded at 3445.5 at midday, down 2.9% from 3549.2 at the end of last week.

France’s CAC 40 was down 2.4% at 5381.8 from 5513.0, while Germany’s DAX had shed 3.1% at 13246.5 from 13677.1 at the close on Friday.

Meanwhile, over the Channel, the FTSE 100 was trading 2.2% lower at 6378.8 from 6520.0.

New strain of virus threatens economic recovery

A new variant of the coronavirus that is thought to be more transmissible than previous versions has spooked markets with fears that it could derail the world’s economic recovery. It has poured cold water on hopes that the introduction of vaccines would spur a quicker recovery and reinforced the idea that tough lockdown measures will be needed well into 2021.

Attention is on the UK, which has had travel restrictions imposed by several countries after health secretary Matt Hancock warned the new variant was getting ‘out of control’. France has closed its border with the UK, although it is reported to be working on new health protocols to ‘ensure that movement from the UK can resume’. 

Several other countries – including Germany, Italy, Ireland, Turkey, India, Hong Kong and Canada – have also stopped incoming flights from the UK.

UK prime minister Boris Johnson is to chair an emergency Cobra meeting today, while the European Union is also meeting to discuss their joint approach to the issue.

New $900 billion stimulus package agreed

A new $900 billion economic stimulus package was agreed by politicians in the US late last week, just hours before existing funding was due to run out and plunge the country into a government shutdown. The new package replaces the $2.2 trillion package introduced in March, when the coronavirus began to ravage the economy.

The package includes cheques for those that have fallen on hard times because of the pandemic and further funding for businesses in trouble, as well as money to cover the cost of vaccinating its huge population.

The agreement is significant and is expected to be passed by both houses of Congress when votes are cast later today. If approved, it would then be signed-off by outgoing president Donald Trump.

US airlines set to secure $15 billion lifeline

US airline stocks are to be among the biggest beneficiaries of the new stimulus package as they are to receive another $15 billion in payroll assistance so they can bring back 32,000 furloughed workers, according to reports from Reuters. It is part of $45 billion worth of support earmarked for the transportation sector as a whole.

Forex: Investors flock to dollar safety

GBP/USD traded at 1.36290 at midday, down 1.9% from 1.35315 at the end of trade last week.

EUR/USD was down 0.7% at 1.21718 from 1.22524 at Friday’s close.  

Meanwhile, uncertainty over Brexit and the isolation of the UK by other countries weighed on sterling against the euro, as EUR/GBP rallied 1.3% to 0.91768 from 0.90623.

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Commodities: Oil slips back below $50 on virus fears

Oil prices climbed to their highest level since early March last Friday but started to lose ground as markets fear another surge in coronavirus cases will hamper the recovery in demand for oil, overriding hope provided by the rollout of vaccines. 

Brent slipped below the $50 threshold and traded at $49.83 at midday, down 4.6% from $52.24 at the end of last week, while WTI shed the same amount to trade at $46.95 versus $49.20.

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Gold also slipped to $1874 per ounce from $1880 at the end of play on Friday.  

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Market-moving events in the economic calendar

The economic calendar is light for the rest of the day. The Chicago Fed national activity index is at 1330 GMT, while preliminary consumer confidence data for the eurozone is due at 1500 GMT.

You can view all the scheduled events for today using our economic calendar, and keep up to date with the latest market news and analysis here.

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