Dow Futures Slump on Fading Stimulus Hopes, European COVID Infection Surge; Weekly Jobless Claims Rise to 898,000

With record cases in Germany and renewed lockdowns in London, Europe's 'second wave' of the coronavirus pandemic is finally unsettling Wall Street as hopes for a pre-election stimulus deal look bleak.

The Thursday Market Minute

  • Global stocks slide amid concerns over the impact of surging coronavirus infection rates in Europe and fading fiscal stimulus hopes in the United States.
  • London looks to enter the second level of its 'three tier' lockdown as cases in the British capital spike, while fresh limits on travel, businesses and social interactions are put in place in France and Italy.
  • Treasury Secretary Steve Mnuchin says a pre-election deal on stimulus is unlikely as Republicans and Democrats spar over the size and scope of any relief bill.
  • Tech stocks stumble following an FT report that suggests EU Competition authorities could look at potentially breaking up dominant firms such as Apple, Facebook, Google and Amazon.
  • U.S. equity futures suggest a weaker open on Wall Street following earnings from Morgan Stanley and Walgreens Boots and worse-than-expected weekly jobless claimsell as weekly jobless claims at 8:30 am Eastern time.

U.S. equity futures tumbled Thursday, while risk-free Treasury bonds and the dollar rallied to multi-week highs, as markets retreated amid a mix of accelerating coronavirus lockdowns in Europe and fading fiscal stimulus hopes in the United States.

With two key vaccine trials forced to pause amid concerns for participants' safety, and a major study on antibody treatments paused for similar reasons, investors are growing increasingly aware of the impact of rising coronavirus infection rates in Europe, as well as in certain areas of the country here in the United States.

Stocks were also hit by weekly jobless claims figures which showed that 898,000 Americans filed for unemployment benefits last week, up from the previous reading of 840,000 and well above the consensus forecast of 825,000.

London is reportedly moving towards the second of its 'three tier' lockdown restrictions this weekend, while France is limiting social interactions and Italy is increasing its own rules on business, travel and inter-family gatherings. Germany, meanwhile, recorded 6.638 new infections, a record that surpasses numbers seen during the pandemic's peak in late March.

In the United States, cases are rising at a rate of around 52,000 per day, down from the 67,000 peak witnessed in mid-July but well ahead of the 32,000 pace recorded in early April.

U.S. Treasury Secretary Steve Mnuchin, meanwhile, appeared to suggest that hopes of a pre-election agreement on stimulus between Republicans and Democrats had all but disappeared after telling an investor event in Washington that "getting something done before the election and executing on that would be difficult just given where we are and the level of detail, but we're going to try to continue to work through these issues."

U.S. equity futures are looking to retreat for a third consecutive day on the growing concerns, with contracts tied to the Dow Jones Industrial Average indicating a 320 point opening bell decline and those linked to the S&P 500 priced for a 40 point pullback.

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Tech stocks, too, are likely to come under notable pressure Thursday following a report in the Financial Times that said European leaders are pushing the EU's Competition Commission to consider stricter measures to limit the influence of tech giants such as Amazon, Google, Facebook and Apple, including rules that could trigger their potential break-up.

Futures contracts tied to the Nasdaq Composite index are priced for a 180 point opening bell slump Thursday.

European stocks were also firmly in the red, with concerns over the region's accelerating pandemic and weaker-than-expected earnings from drugmaker Roche and oil major Total leading markets to the downside.

The Stoxx 600 benchmark was seen 2.4% lower in mod-day Frankfurt trading, lead by a 2.9% slump for Germany's DAX performance index and a seven-month low of -0.627% for benchmark 10-year German government bond yields. 

Britain's FTSE 100, meanwhile, fell 2.2% amid speculation of the stricter lockdown rules in London and the lack of progress in Brexit talks heading into a two-day European Leaders' Summit.

Away from equities, the U.S. dollar index, which tracks the greenback against a basket of six global currencies, jumped 0.45% to a multi-week high of 93.80 in overnight trading as investors retreated from risk assets, while benchmark 10-year Treasury note yields rallied under 70 basis points, to 0.697%, for the first time in two weeks.

Oil prices were also lower in early European dealing, pulled to the red by the firmer U.S. dollar and increasing concerns for energy demand over the final months of the year following a gloomy assessment Wednesday by the International Energy Agency in Paris.

WTI contracts for November delivery, the new U.S. benchmark, traded $1.44 lower from their Wednesday close in New York and were changing hands at $39.90 per barrel in early European dealing while Brent contracts for December, the global benchmark, were seen $1.26 lower at $42.06 per barrel.

Overnight in Asia, a firmer Japanese yen, as well as reports that President Donald Trump is ready to add China's Ant Financial to the U.S. trade blacklist added to the market's risk-off sentiment,  with the region-wide MSCI ex-Japan benchmark falling 1.26% heading into the final hours of trading and the Nikkei 225 in Tokyo ending the session 0.51% lower at 23,507.23 points.