The stock markets rallied for the last several weeks due to optimistic sentiment that the pandemic was retreating. However, Monday’s session began with a sharp sell-off. New virus-case numbers from China to the U.S. fueled concerns of a second wave of infections.
As a result, futures on the S&P 500 plummeted down by 3.3%, while the Stoxx Europe 600 index dropped by 2.6% in early trading in London. Asian stocks also plunged by about 2.4%.
Mamoru Shimode, the chief strategist in Tokyo, stated that people now doubt the optimistic view they held. While a V-shaped recovery wasn’t possible in the first place, people had been quick to buy stocks on optimism.
However, China is currently facing the biggest test of its containment strategy. There was a rise in cases connected to a vegetable market in the capital. On Sunday, Tokyo saw a resurgence in cases. Not only is the possibility of a new outbreak is daunting, but there is also the question of whether policymakers have many stimulus measures left after massive easing earlier this year.
On Monday, Chinese economic data showed that the world’s second-largest economy had a smaller recovery in May than analysts had expected. Retail sales continue to fall, and industrial output increases by less than forecast.
What do the experts say?
According to Patrick Bennett, a strategist at the Canadian Imperial Bank of Commerce in Hong Kong, the reports of new coronavirus cases that suggest caution is appropriate. He thinks that if investors place Chine under scrutiny, stock markets will continue to trade with an overall negative tone.
Sebastien Galy, the senior macro strategist at Nordea Investment Funds, thinks that pressure on markets may last until Thursday.
Takeo Kamai, the head of execution services at CLSA Securities Japan, thinks that CTAs selling U.S. futures may have prompted the sell-off. This was in reference to Commodity Trading Advisors. Such situations show how fragile the market rally was. But currently, investors seem to have their focus on the possible second-wave information out from Beijing and Tokyo.