NEW YORK (Reuters) - Fears of a second wave of COVID-19 infections rocked world markets on Monday, knocking down oil prices and a gauge of global equity performance more than 2% at one point, as investors grappled with how to assess the economic recovery.
China re-introduced restrictions in some areas after Beijing reported its biggest cluster of new infections since February, and new cases and hospitalizations in record numbers also swept through more U.S. states, including Florida and Texas.
Data showed factories in China stepped up production for a second straight month in May, giving investors hope, but also showed sustained contractions in retail sales and investment, suggesting many sectors were still struggling.
News elsewhere also was discouraging. Germany’s Economy Ministry said economic output will fall further in the second quarter than in the first, and it warned the recovery later this year and beyond would be sluggish.
“Market are pricing a too-optimistic recovery, in my opinion, and there could be a reality check coming rather sooner than later,” said Stephane Ekolo, an equity strategist at TFS Derivatives in London.
Equity markets slid last week following a global rally since late March, fueled by central bank and fiscal stimulus and optimism about countries gradually lifting lockdowns.
Many analysts have warned about the disconnect between a global recession and optimism in stock markets, with the Nasdaq hitting record highs even as U.S. unemployment surged.
MSCI’s gauge of stocks across the globe shed 0.88%, reflecting steep losses overnight in Asia. The pan-European STOXX 600 index lost 0.36% after falling more 2.5% in early trading.
Japan’s Nikkei closed down 3.5% and South Korean shares tumbled 4.8%.
On Wall Street, the Dow Jones Industrial Average fell 260.98 points, or 1.02%, to 25,344.56. The S&P 500 lost 21.09 points, or 0.69%, to 3,020.22 and the Nasdaq Composite dropped 21.29 points, or 0.22%, to 9,567.52.
Oil prices fell. U.S. crude fell 1.82% to $35.60 per barrel and Brent was at $38.53, down 0.52% on the day.
“A fresh wave of cases will certainly raise worries that a recovery in demand may take even longer than initially thought,” said ING’s head of commodities strategy, Warren Patterson.
U.S. Treasury yields fell as the renewed concerns over the spread of the coronavirus dented risk appetite and boosted demand for safe-haven bonds.
Benchmark 10-year notes fell 1.5 basis points to yield 0.6903%.
Euro zone bond yields edged down as investors bought safer assets such as government bonds.
Germany’s 10-year bond yield was near a three-week lows at -0.45%.
The dollar fell against a basket of trading currencies.
The dollar index fell 0.17%, with the euro up 0.16% to $1.1272. The Japanese yen weakened 0.09% versus the greenback at 107.46 per dollar.
Asset performance vs outbreak here
“The market was pricing in a V-shape recovery. This can’t be the case if there is indeed a second wave, the best scenario is U-shaped”, said Steven Leung, executive director for institutional sales at Uob Kay Hian.
Worldwide coronavirus cases have crossed 7.86 million with 430,501 deaths, according to a Reuters tally.
Stocks and oil versus COVID-19 cases here
Reporting by Herbert Lash