Wall Street opened lower after the chair of the Federal Reserve warned the coronavirus pandemic risked causing long-term damage to the US economy.
Jay Powell said the US may need to deploy “additional policy measures” to avoid an “extended period of low productivity growth and stagnant incomes”.
“The recovery may take some time to gather momentum,” he added.
The S&P 500 opened down 0.2 per cent, after futures trade turned negative following Mr Powell’s comments. The Dow Jones slipped 0.4 per cent while the tech-weighted Nasdaq gained 0.1 per cent.
The rally in global markets had already faltered on Wednesday, under pressure from rising US-China tensions and concerns over the timeline for reopening economies during the coronavirus pandemic.
European stocks fell, with London’s FTSE 100 down 1 per cent and the Stoxx 600 index, which offers a snapshot of the region’s largest companies, 1.5 per cent lower.
Sterling was little moved by official data showing the UK economy shrank at the fastest monthly pace on record in March, and was up 0.3 per cent against the US dollar at $1.2295.
Global equities have rallied through some of the worst economic data in recorded history, as investors welcomed central bank support and focused on the gradual reopening of economies from pandemic-imposed lockdowns.
But the rebound remains sensitive to concerns that a second wave of infections will hobble efforts to swiftly reopen economies. China and South Korea have already seen renewed clusters of coronavirus cases.
The yield on the benchmark 10-year US Treasury fell 0.035 percentage points to 0.659 per cent, as investors moved into safer assets.
“Equity and fixed income markets may have begun healing from their March panic, but they continue to face headwinds,” said Andrew McCaffery, chief investment officer of Fidelity International.
Markets are “looking through” the current economic disruption, but “much depends on how long it takes to end lockdowns, lift restrictions and restore confidence”, he said.
Investor sentiment has also been dented by the re-emergence of trade tensions between Washington and Beijing.
On Tuesday, US president Donald Trump ordered the main federal government pension fund, which manages almost $600bn on behalf of federal employees, not to invest in Chinese companies, citing the risk of “future sanctions” over Beijing’s handling of the coronavirus pandemic. The White House said investment in Chinese companies would “expose the retirement funds to significant and unnecessary risk”.
“I think [the] action will have a negative impact at the margin in terms of dampening some flows into Chinese assets, and some other markets may follow,” said Colin Harte, portfolio manager at BNP Paribas Asset Management.
Markets in Asia recovered earlier losses towards the end of the trading day. China’s CSI 300 index of Shanghai and Shenzhen-listed stocks gained 0.2 per cent, while Japan’s Topix shed 0.1 per cent and Hong Kong’s Hang Seng index fell 0.3 per cent.
One bright spot in the region was India’s Sensex index, which climbed 2 per cent after Narendra Modi, the prime minister, on Tuesday announced a $266bn stimulus package to help the country’s economy recover from its coronavirus-induced lockdown.
The recent rally in oil prices fizzled out on Wednesday. West Texas Intermediate, the US marker, was down 0.5 per cent at $25.90 a barrel. A day earlier WTI gained almost 7 per cent after the American Petroleum Institute reported that inventories at the key storage facility of Cushing, Oklahoma, had fallen by more than 2m barrels.
Brent crude, the international benchmark, fell 0.4 per cent to $30.10 a barrel.