Trump's Covid diagnosis spooks investors but FTSE closes in the black
Markets in the US and Europe endured a day of volatile trading after Donald Trump’s positive test for Covid-19 shook investors.
The S&P 500 index, the US equity market benchmark, fell by 1.6% in the opening trades on the New York stock exchange, but closed down just 0.96%. The Dow Jones lost 1.4% initially but also pared its losses to end the day down 0.48% while the tech-heavy Nasdaq index lost 2.2%. Investors initially reacted badly to the Trump news but gained confidence as Washington appeared closer to reaching a deal on a fresh round of stimulus money.
Every major stock market index in Europe fell in early morning trading, although by the afternoon many had recovered some of their losses, with the FTSE 100 in London closing up by 0.4%.
Analysts said Trump’s diagnosis would heighten uncertainty in financial markets in the run-up to the election, scheduled for 3 November.
Kit Juckes, the head of foreign exchange strategy at the French bank Société Générale, said there were “few immediate answers” to the uncertainties posed by the news, although he noted that the Democratic nominee, Joe Biden, had a significant lead in most national polls.
However, Juckes added: “The path of the election campaign will inevitably change and uncertainty has obviously increased.”
The Trump news added to concerns about the economic outlook as new data showed that US job growth slowed more than expected in September. The US Labor Department said on Friday that non-farm payrolls increased by 661,000 last month, after the economy added 1.5 million jobs in August. Economists were expecting an increase of 850,000.
James Knightley, chief international economist at the investment bank ING, said the jobs figures showed the US economic recovery was losing momentum.
“While employment continues to grow, the pace of gains is slowing, while government jobs are being lost,” he said. “It underlines the argument for additional fiscal support.”
Oil prices were among the hardest hit on financial markets. Futures prices for Brent crude, the North Sea
oil benchmark, fell by more than two dollars, or 5%, to less than $39 per barrel. The US West Texas Intermediate benchmark also lost as much as $2 to fall below $37.
The prices of safe-haven assets rose in the immediate aftermath of the Trump announcement before retreating over the course of the day. Gold prices rallied in morning trading but fell back by 0.3% later in the day to trade at $1,900 per troy ounce.
Investors bought government bonds, generally considered to be less risky than equities, after the news was announced. The yield on the benchmark US 10-year Treasury bond fell from 0.684% to 0.653% before recovering to trade slightly higher over the day. Bond yields move inversely to prices, falling as demand rises.
Derek Halpenny, the head of research at MUFG Bank, said the news would “diminish risk appetite” but added that it was unclear how it would ultimately affect financial markets, given differing views among investors on whether a Trump or Biden win would be more favourable for the US economy.
Halpenny also noted that a possible delay to the election might add to the uncertainty.
Mohit Kumar, an interest rate strategist at the US investment bank Jefferies, said Trump’s diagnosis and the failure of Republican and Democratic politicians to reach a breakthrough in negotiations meant a fresh stimulus package – a potential boost to stock markets – was unlikely until after the election result.