On Monday, the coronavirus which first emerged in the Chinese city of Wuhan, saw a second wave hitting the Chinese capital with a link to its biggest wholesale food market.
Security checkpoints are back in cities, with the Chinese government once again clamping down and forcing people to get tested.
The second wave of infections sent jitters across global markets with investors rushing to buy safe havens including German government debt. The development forced leading investors to reassess their assumption of a quick 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, equity strategist at TFS Derivatives. “Market are pricing a too-optimistic recovery, in my opinion, and there could be a reality check coming rather sooner than later”.
With the coronavirus making a return after a lull in reporting of fresh cases, confidence levels in Beijing, home to the headquarters of many big corporations, have been shaken.
“The containment efforts have rapidly entered into a war-time mode,” said senior city government official Xu Ying at a news conference.
The STOXX 600 fell by 2.5% with all sectors and regional markets trading deep in the red after losses accelerated in the final hours of trading in Asia.
Japan’s Nikkei also fell by 3.5% while South Korean shares fell by 4.8%.
Futures for the S&P 500 extended losses, shedding 2.9%.
Brent crude futures fell 2.7%, to $37.69 a barrel. U.S. West Texas Intermediate crude futures were down 4.1%, to $34.78 a barrel.
Oil investors await OPEC+ committee meetings later this week that will advise the producer group and its allies on output cuts.
The euro slipped 0.1% versus the dollar at $1.1243.