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Dow Futures Plunge Amid Concern For Second Wave of Coronavirus Infections; Market Volatility Tests Two-Month Highs

The S&P 500 looks set to start the week with the highest levels of daily volatility since late April as investors brace for a possible second wave of coronavirus infections.

The Monday Market Minute

  • Global stocks slump as investors brace for a second wave of coronavirus infections just as major economies around the world are starting to full re-open after months of pandemic-triggered lockdowns.
  • Beijing records the highest number of new cases since February, while southern U.S. states see a jump in infections as businesses and holiday destinations re-start operations.
  • European stocks slump in risk-off trading as Schengen area countries ease travel and lockdown restrictions.
  • The CBOE's VIX volatility gauge rises to a near two-month high, forecast daily moves for the S&P 500 of nearly 68 points. 
  • Oil prices slide after weak China factory output data and a grim longer-term price forecast from oil major BP plc.
  • U.S. equity futures suggest a notably weaker open for Wall Street ahead of the Empire State manufacturing index at 8:30 AM Eastern time.

U.S. equity futures plunged lower Monday, while global stocks slumped to multi-week lows, as investors retreated from risk markets all around the world amid concerns over a potential second wave of coronavirus infections.

Beijing recorded nearly 80 new cases of the disease yesterday, the largest tally since February, as health officials looked to a now-closed food market for the origins of the new outbreak. The numbers added to concerns that re-opened cities in the United States have triggered a jump in new infections that could lead to a resurgence of the pandemic in the coming weeks.

The second wave concerns also come as Europe looks to lift travel and stay-at-home restrictions for the 420 million people living in the 26 countries that form the so-called Schengen area, as well as Britain's move to open stores and shops as it continues to ease lockdown orders in Europe's third-largest economy.

Investors also appear willing to take profits in a market that had rallied more than 44% from late March to the latter half of last week, fueled in party by trillions in central bank and government stimulus plans aimed at cushioning the economic impact of the global pandemic.

Futures contracts tied to the Dow Jones Industrial Average, which has fallen 7.1% since the market downturn began last week, are priced for a 550 point opening bell decline while those linked to the S&P 500, which is in negative territory for the month, are looking at a 55 point pullback to start the trading week. 

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Market volatility is also starting to rise, with the CBOE's closely-watched VIX index rising 2.7% to 41.89 points. The gain means options investors are pricing in a 66.6 point daily move for the S&P 500, in either direction, the highest since April 22. 

Global oil prices were notably weaker Monday, as well, following a softer-than-expected reading for industrial production in China, which grew 4.4% last month, and a grim long-term price outlook from U.K. oil major BP Plc  (BP) - Get BP Plc Report, which also warned investors of a potential asset writedown of $17.5 billion. 

WTI contracts for July delivery were marked 46 cents lower lower from their Friday close in New York and changing hands at $35.80 per barrel while Brent contracts for August, the global benchmark, were seen 20 cents lower at $35.83 per barrel.

European stocks slumped to multi-week lows as the Stoxx 600 fell 1% by mid-day Monday trading, lead by a 1.13% decline for the DAX performance index and a similar percentage pullback for the CAC-40 in Paris.

Britain's FTSE 100 fell 1.1%, lead to the downside by BP's 4.1% decline and a stronger pound, which held at 1.2535 against the U.S. dollar.

The dollar was oddly on the back foot in overnight trading, even as investors pulled cash from risk markets and plowed it into U.S. Treasury notes, taking 10-year yields to 0.664%, as the dollar index dipped 0.123% against a basket of six global currencies to trade at 97.196.

Overnight in Asia, Japan's Nikkei 225 tumbled 3.47% to a three-week low of 21,530.95 points in the opening trading session of the week, while heavy losses in South Korea and Australia pulled the MSCI ex-Japan regional benchmark 2.3% lower heading into the final hours of trading.