European stock markets have U-turned after an early bounce, sending them back into the red following warnings from the OECD that coronavirus could half global growth this year.
Stocks jumped in early trading as traders bet central banks would unleash stimulus in response to the virus outbreak.
Those gains have since dissipated, however. The pan-European Stoxx 600 index was 1.4 per cent lower by 12.30pm UK time, Germany’s Dax was down 1.7 per cent, and the UK’s FTSE 100 was 0.4 per cent lower.
Wall Street is now expected to drop after the bell, according to futures prices, continuing the dire run for equities which wiped nearly $6 trillion (£4.7 trillion) off global stock markets last week.
The change in sentiment came after the OECD said coronavirus could result in just 1.5 per cent world growth this year if the virus spreads fast through Asia, Europe and North America.
However, the Paris-based organisation’s base case is that containment efforts will avoid this situation. Nonetheless, growth is expected to be just 2.4 per cent this year, the worst since 2009.
The OECD urged governments to “act swiftly and forcefully to overcome the coronavirus and its economic impact”.
“Governments need to ensure effective and well-resourced public health measures to prevent infection and contagion, and implement well-targeted policies to support health care systems and workers,” the report said.
As investors moved away from European stocks after their bout of morning optimism, they resumed buying safe-haven assets such as government bonds.
In Germany, the yield on the 10-year German Bund fell more than four basis points (0.04 percentage points) to minus 0.651 per cent, having earlier hit its lowest in six months. Yields move inversely to price.
US 10-year Treasury yields stayed close to record lows, shedding nine basis points to last stand at 1.066 per cent.
Investors are now expecting interest rate cuts from central banks around the world. Traders think there’s now a 63 per cent chance the Bank of England will cut rates at its next meeting, which has pushed down the pound today against the euro and dollar.