Wall Street tracked European exchanges significantly lower on concerns. A rising number of coronavirus infections will trigger a new wave of social restrictions that will put a damper on business.
The US benchmark index S&P 500 fell 2 percent in morning trading on Monday. The Vix index rose by more than 4 points to 31.6 points and was thus well above its long-term average of 20 points. This is a sign that investors are preparing for spurts of volatility in the coming month.
The number of U.S. coronavirus cases has increased in the past few days, with the number of new weekly cases increasing the most since a major summer outbreak. In Europe, Italy and Spain announced extensive measures on Sunday to tackle a jump into new cases.
"Spain and Italy, who are stepping up crackdown on restrictions to tackle their growing number of cases, are clearly terrifying European stocks," said Charles Hepworth, investment director at Zurich-based wealth manager GAM. With the global pandemic worsening and the US presidential election approaching, "it's a very turbulent trading period we're entering," he added.
German stocks led the widespread decline in European markets, with the Frankfurt Dax index falling 3.7 percent in afternoon trading. Germany's SAP fell as much as 22 percent – and was on its way to its worst decline since the late 1990s – after the sprawling business software group warned that renewed lockdowns had weighed on demand for their services.
The region's technology groups fell more than 7 percent, while the FTSE MIB in Milan, the CAC 40 in Paris and the European Stoxx 600 fell 1.8 percent.
Energy stocks also sold after oil prices fell. Brent crude, the international benchmark, fell more than 3 percent to below $ 41 a barrel amid fears that rising infections would hurt demand.
Traders also kept an eye out for news of US stimulus measures, although the chances of a deal being passed before the elections have diminished this weekend. On Friday, White House chief of staff Mark Meadows said a deal could be struck in the next day or two, but Treasury Secretary Steven Mnuchin said there were still hurdles to reaching an agreement.
"We believe the business talks are really dead now," said Win Thin, global head of currency strategy at New York-based financial services group BBH.
Savvas Savouri, chief economist at Toscafund Asset Management, said the impasse was “politicking” before the elections, but it was likely that a deal would be approved after election day.
In Europe, data on German business confidence disappointed investors. The Ifo Institute announced that the October value for the main business climate index fell to 92.7 points, below the September value and below the 93 expected by analysts surveyed by Reuters. It was the first drop in five consecutive climbs.