Stocks sink on dark Fed outlook, second wave fears

People walk past an electric quotation board displaying the numbers of the Nikkei 225 Index on the Tokyo Stock Exchange

LONDON (AFP) - World stock markets sank anew yesterday as the US Federal Reserve warned over the “highly uncertain” economic outlook due to the coronavirus pandemic -- and investors eyed fears of a second wave of the killer disease in the United States.

European equities dived after fresh losses in Asia and overnight on Wall Street, with sentiment also hit by the mounting coronavirus jobs toll as businesses scramble to cope with virus fallout.

Shares in German airline Lufthansa dived 6.8 percent to 10.41 euros in Frankfurt after the company said it would axe 22,000 jobs.

Centrica dipped one percent after the UK energy supplier shed 5,000 roles.

Oil prices tumbled after data showed US supplies jumped 5.7 million barrels last week, reviving demand worries despite easing lockdowns.

Attention is now on Thursday’s release of US unemployment claims data, which will give a fresh snapshot of the economy following a blockbuster reading for May that showed a shock jump in jobs creation.

Stocks worldwide have been rallying for several weeks as lockdown measures are eased in key regions, and after governments and central banks pledged trillions of dollars in support to 
kickstart growth.

“The market got too far ahead of itself and is reacting to the Fed’s gloomy outlook and fears of a second wave of infections,” said Markets.com analyst Neil Wilson.

But after a much-anticipated meeting, the Fed laid out its view Wednesday that the world’s top economy would take time to fully recover from the worst global emergency in generations.
In a statement it warned the crisis “poses considerable risk to the economic outlook over the medium term”, forecasting a 6.5-percent contraction this year and unemployment of 9.3 percent.

Fed boss Jerome Powell warned that “the path of the economy is highly uncertain”, while the bank added it will keep rates at zero until the recovery is underway.

While the Fed reading was broadly in line with market expectations, it gave a jolt to traders who have been piling into stocks on hopes for a quick rebound.

Adding to unease, California, Florida and Texas have reported new spikes in COVID-19 infections.

“Jumps in new daily cases ... immediately sparked concerns of a potential second round of infection in the country, inevitably impacting market sentiment towards riskier assets,” said ActivTrades analyst Pierre Veyret.

“Of course, there must be many more signs of a potential second wave before this scenario becomes a real possibility,” he said.