U.S. equity futures fell on Thursday as hopes for a recovery weakened and the prospect of further restrictions across Europe cast a shadow over the global economic outlook.
Futures contracts linked to the S&P 500 slipped 1.1%, suggesting that the benchmark could fall for a third day in a row. Overseas, the pan-continental Stoxx Europe 600 index fell almost 2%, while most of the major Asian benchmarks closed lower.
The US stock market has largely bottomed this week as investors assess a host of risk factors. The uncertainty surrounding the next election and recurring stimulus talks, as well as the risks of a second wave of coronavirus infections, the timing of Covid-19 vaccines and treatments, and questions about how businesses are resisting the recession left many investors sitting on the sidelines.
“The back and forth on the pre-election stimulus package has gone from a lot of optimism to a lot of pessimism,” said Jim McCormick, global head of office strategy at Natwest Markets. “And we are seeing setbacks on the vaccine and general pessimism about the worsening situation of Covid in Europe.”
The markets also reflect the reluctance of investors to make large bets ahead of the election, when the risk of disputed results has been eliminated, McCormick said.
Former Vice President Joe Biden holds an 11-point lead over President Trump less than three weeks before Election Day, according to the latest Wall Street Journal / NBC News poll. Despite Mr Biden’s lead, uncertainty over an election night surprise keeps investors cautious.
“We’re in this hold-over pattern where I think the market realizes the Democratic sweep is more and more likely,” Mr. McCormick said. “But because of the experiences of 2016, there is a lot of reluctance to assess things.”
Weekly unemployment claims data, which is expected to be released at 8:30 a.m. ET, is likely to show unemployment benefit claims likely remained above pre-pandemic highs last week, as layoffs persistent slowing down economic recovery. Economists expect data to show an additional 830,000 Americans filed last week.
The data will be especially important given that Congress is unlikely to send another round of checks to U.S. households ahead of the election, said Hugh Gimber, global market strategist at JP Morgan Asset Management.
The stalemate between the White House and Congress over any additional government spending appears to become more entrenched on Wednesday. Treasury Secretary Steven Mnuchin has played down the chances of a pre-election breakthrough and House Speaker Nancy Pelosi said major disagreements have yet to be resolved.
The comments clouded investor hopes and led the S&P 500 to end Thursday down 0.7%. Talks are expected to continue on Thursday.
“Investors should view any stimulus ahead of the election as a bonus,” Gimber said. The most urgent question, he added, is: “If there is a clean sweep of Democrats, could they push through the stimulus package in a lame session at the end of the? year, or will we have to wait until next year to pass it? ? “
Investors also continue to assess the performance of large US companies during the economic downturn. Wall Street giant Morgan Stanley and drugstore chain Walgreens Boots Alliance are expected to release quarterly figures around 7 a.m.
The rise in coronavirus cases in Europe and the fight by local governments to contain the spread is also weighing on sentiment. A number of European countries are tightening restrictions in an attempt to stop the second wave of cases as hospitals fill up.
On Wednesday, France declared a state of emergency and announced a nighttime curfew for the Paris region and eight other agglomerations across the country. In the UK, Prime Minister Boris Johnson faces growing calls to impose a temporary lockdown in parts of the country.
Brent, the international benchmark for oil, fell 1.4% to $ 42.73 a barrel amid growing concerns about the global economic outlook. Gold fell 0.5%.
The yield on the 10-year Treasury bill fell to 0.712%, from 0.721% on Wednesday.
In Asia, the Hong Kong Hang Seng was down 2.1% at the close of trading, while Japan’s Nikkei 225 was down 0.5%.
Write to Will Horner at William.Horner@wsj.com
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