Stock markets around the world have lurched downwards, as mounting gloom at the prospect of winter Covid-19 lockdowns across Europe triggered an “avalanche” of selling.
With infections rising and intensive care units filling up, major economies such as Germany and France are headed towards tougher coronavirus restrictions that also likely to halt the region’s fragile economic recovery.
The FTSE 100 fell on Wednesday by more than 2.5% to a six-month low of 5582.82, with shares in 98 of the UK’s top 100 blue-chip companies ending the day lower in a sell-off spurred by the prospect of renewed turmoil.
The fallers were spread across multiple sectors of the economy but shares in travel and leisure firms listed on the FTSE 250 fell by the greatest margins, with the cruise company Carnival down 7.6% and Cineworld finishing 6.9% lower.
While the FTSE’s fall of almost 3% on Wednesday would be among the steepest in most years, it was only the 19th worst of 2020. In the early days of the pandemic in March, the market plunged by more than 10% at one point.
But the sell-off was mirrored around the world, reflecting concern that the entire northern hemisphere is headed for a significant second wave of coronavirus.
The Dow Jones industrial average closed down 942 points, or 3.4%, at 26,520, The S&P 500 shed 3.5% while the tech-focused Nasdaq tumbled by 3.7%.
The Euro Stoxx50, an index of 50 eurozone stocks dominated by French and German companies, fell by more than 3.8% to a five-month low. Germany’s Dax fell 4.4%, France’s Cac was 3.7% lower and the Spanish Ibex was down 2.5%.
Chris Beauchamp, the chief market analyst at the trading firm IG, said global indices had been hit by an “avalanche” of selling, owing to imminent lockdown measures in Germany and Switzerland, with the French president, Emmanuel Macron, expected to follow suit with a four-week lockdown.
“In these circumstances, a UK lockdown seems not far behind, given the current direction of travel across the continent,” Beauchamp said.
“The dive in European markets over the past few days has revealed how dire sentiment is towards this part of the world, with already weak GDP forecasts likely being hastily revised yet lower thanks to the return of lockdown policies.”
Laith Khalaf, a financial analyst at AJ Bell, said it was surprising that markets had taken so long to react to the prospect of a second wave of the pandemic.
“The writing has been on the wall for several weeks now, but stock markets have had their blinkers on,” he said. “Until the virus is contained, there can be no clear direction for markets in the short term. We can expect sharp sell-offs and relief rallies in line with the ebb and flow of the virus, and the unfolding economic damage it leaves behind.”
That sentiment has not been improved by events in the US, where hopes of a pre-election stimulus package have dried up. A tightening of electoral polls has also raised the possibility that a closer-than-expected battle for the White House could lead to a period of political deadlock.
But Edward Moya, senior market analyst at New York-based currency trading firm Oanda, said the main cause for concern on Wall Street was not politics but the apparent inability of global economies to control the virus.
“It is getting very ugly out there and it has nothing to do with the election,” he said. “Virus fatigue is growing for many Americans, Europeans too and the pessimism for the stock market is just accelerating as too many regions are unable to contain the virus spread.”
With investors scratching around for safe haven assets, the dollar strengthened against both the euro and sterling.
While gold often rises when markets look for reliable places to store money, the fact that it is priced in dollars meant it also suffered, losing 1.4%, while Brent crude oil was down more than 4% to just under $39 a barrel.
The European Central Bank meets on Thursday, and had been widely tipped to take no new stimulus action until December.
But the online brokerage firm ThinkMarkets said the ECB could change its mind in the circumstances.
Fawad Razaqzada, a market analyst, said: “In light of the fast-deteriorating virus situation, and the falls in the European stock markets, acting now rather than later may make more sense.
“Why wait until things get really bad, if you are planning to provide more support in two months’ time anyway?”