By Julien Ponthus
LONDON (Reuters) - Fears of a second wave of COVID-19 infections sent jitters across global markets on Monday with stocks and oil under pressure while investors bought into safe havens such as government bonds.
Several districts of the Chinese capital of Beijing closed schools and ordered people to be tested after an unexpected rise in infections linked to the biggest wholesale food market in Asia.
This latest development, added to rising infections and hospitalisations in several U.S. states, has led investors to reassess the chances of a swift V-shaped recovery.
"I am convinced that if cases continue to rise again, market participants will clearly re-evaluate market valuations and their assumptions", said Stephane Ekolo, an equity strategist at TFS Derivatives in London.
"Market are pricing a too-optimistic recovery, in my opinion, and there could be a reality check coming rather sooner than later."
After falling over 2.5% in early trading, the pan-European STOXX 600 limited its losses to 0.5% with most sectors and regional markets trading in the red after heavy losses in Asia.
Japan's Nikkei fell 3.5% and South Korean shares tumbled 4.8%.
Futures for the S&P 500 pared some losses but were still down 1.8%.
The retreats follows a global rally since late March, fuelled by central bank and fiscal stimulus and optimism about countries gradually lifting lockdowns.
A number of analysts, however, have warned about a possible disconnect between anticipation of a dire global recession and the optimism in stock markets, with the Nasdaq hitting record highs even as U.S. unemployment has surged.
"The market was pricing in a V-shape recovery. This can't be the case if there is indeed a second wave, the best scenario is U-shaped", said Steven Leung, executive director for institutional sales at Uob Kay Hian.
"There will be a bigger impact this time on all those stocks tied to the expected economic recovery such as travel, hotels, if we see a second wave."
Euro zone bond yields edged down as investors bought safer assets such as government bonds.
Germany's 10-year bond yield was near a three-week lows at -0.45%.
Brent crude futures fell 0.7%, to $38.47 a barrel. U.S. West Texas Intermediate crude futures were down 1.7% at $35.65 a barrel.
Oil investors await OPEC+ committee meetings later this week that will advise the producer group and its allies on output cuts. [O/R]
In currencies, the dollar index rose to 97.20, flirting with a 10-day high, while risk-sensitive currencies such as the Norwegian and Swedish crowns suffered, trading around two-weeks lows.
The euro slipped 0.1% against the dollar to $1.1249
Worldwide coronavirus cases have crossed 7.86 million with 430,501 deaths, according to a Reuters tally.