US stocks set to fall after SAP coronavirus warning hits Europe

Wall Street was set to follow European bourses lower on Monday after SAP, one of the region’s biggest tech groups, warned that the latest coronavirus lockdowns had hit demand for its services.

German stocks led the broad fall across the region’s markets, with Frankfurt’s Dax index down 2.8 per cent in mid-morning trading. SAP tumbled as much as 20 per cent, leaving the sprawling German business software group on track for its worst fall since the late 1990s.

Futures contracts tipped the large-cap S&P 500 index to slip 1.1 per cent when US markets opens later, while the tech-heavy Nasdaq 100 was set to fall 0.9 per cent.

SAP warned on Sunday that “lockdowns have been recently reintroduced in some regions” where it does business, and a recovery in demand that it had predicted in April had been “more muted than expected”.

The company’s cautious outlook came as concerns escalated about the impact of measures being taken across Europe to slow the spread of the virus. Italy and Spain, which were among the hardest hit nations in the region during the first wave of the pandemic, announced sweeping measures on Sunday to address a surge in new cases.

“Spain and Italy moving to enhanced restrictions to combat their growing case numbers is clearly spooking European equities,” said Charles Hepworth, investment director at Zurich-based asset manager GAM. With the pandemic worsening globally and the US presidential election looming, “it’s a very choppy trading period that we’re going into”, he added.

Europe’s tech groups were down more than 6 per cent following SAP’s announcement, the sector’s worst daily performance since the market rout in March.

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Energy was the second-worst performing sector in Europe, after tech, following a pull back in oil prices. Brent crude, the international benchmark, slipped 2 per cent to below $41 a barrel on fears that rising infections would hit demand.

Milan’s FTSE MIB and the region-wide Stoxx Europe 600 indices were down 1 per cent by lunchtime while the CAC 40 in Paris slipped 1.1 per cent.

Data released by the Ifo Institute in Munich about German business confidence disappointed investors. October’s reading for the main business climate index fell to 92.7 points, below September’s reading and less than the 93 expected by analysts polled by Reuters. It marked the first fall after five consecutive rises.

“[It] is not weak enough to fear another collapse of the economy, but as all of Europe is in the second wave of the virus, today’s Ifo index definitely marks the end of the rebound and the start of double-dip fears,” said Carsten Brzeski, global head of macro at Dutch financial group ING.

Traders are also looking ahead to next week’s US presidential election and watching for news of further stimulus measures.

The chances that a deal might be passed before the election dimmed as the weekend came and went without one. On Friday, Mark Meadows, White House chief of staff, said a deal could emerge in the next day or two, though Steven Mnuchin, Treasury secretary, said there remained hurdles to reaching an agreement.

“We think stimulus talks really are dead now,” said Win Thin, global head of currency strategy at New York-based financial services group BBH.

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If the Democrats win the House and the Senate, in what is being termed a “blue wave”, lawmakers could pass an “aggressive” fiscal stimulus package, with the expansion of the Federal Reserve’s balance sheet likely to be “dollar negative” but positive for equities, he said.



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