Global markets and U.S. stock futures fell Thursday after the Federal Reserve warned the coronavirus pandemic might threaten the modest economic recovery and kept interest rates near zero.
The drop in stocks accelerated in Europe after Germany said its economy shrank by 10% in the second quarter from the previous three-month period.
U.S. GDP data is due later Thursday, while the Europe-wide figures will be released Friday.
Lower interest rates and investor optimism about a possible coronavirus vaccine; have helped global markets recover most of this year’s losses.
But analysts say it might be too early to bet the recovery will persist; given the rising infection numbers in the United States, Brazil and other countries.
On Wednesday, Fed Chairman Jerome Powell warned that rising U.S. cases; which have led some state governments to reimpose anti-disease measures; threaten the modest recovery from the pandemic.
The Fed said it would keep buying $120 billion of Treasury and mortgage bonds every month to encourage borrowing and spending; but Powell said Congress needs to take action.
Legislators have yet to agree on aid after $600 in weekly unemployment benefits for millions of Americans run out this week.
“The current situation is all about money in consumer pockets; which is precisely why fiscal policy is so much more important,” Stephen Innes of AxiTrader Corp. said in a report.
In Europe, Frankfurt’s DAX retreated 2.4% to 12,511 after the GDP figures came in below expectations.
Economists note that the second quarter was the economic low point; and recent data has shown a relatively strong bounce back since then.
Still, the second quarter drop was the sharpest on record for Germany, Europe’s largest economy; and suggests the eurozone figures due Friday could also be worse than predicted.
The CAC 40 stock index in France declined 1.2% to 4,900, and the FTSE 100 in London lost 1.6% to 6,036.