The Federal Reserve reaffirmed its support for the US economy, but boss Jerome Powell said fresh government help was needed to help it through the virus crisis

London (AFP) - US and European equities sank Thursday on mounting corporate and economic evidence of the coronavirus-induced downturn, crystallised by the worst quarterly drop in US growth since records began after World War II.

The slide came on the heels of a gloomy Federal Reserve warning over a US spike in COVID-19 infections, adding to fears of yet more job losses in the wake of the pandemic which continues to batter the global economy.

Major Asian trading hubs had limited losses before the US Commerce Department revealed the US economy shrank by one-third in the second quarter – the worst contraction on record.

The Dow Jones Industrial Average lost 1.5 percent shortly after the opening bell, while shares nosedived in Europe too.

In Frankfurt the DAX index was reeling, shedding 3.3 percent on official data showing that Germany’s powerhouse economy shrank a record 10.1 percent in the same quarter.

Elsewhere, London’s FTSE 100 lost 3.1 percent and Paris was off more than two percent on an avalanche of gloomy corporate earnings closely tied to the devastating impact of the coronavirus.

“The record fall with (US) second quarter GDP puts an exclamation mark with the coronavirus recession,” said Edward Moya, senior market analyst at OANDA.

“Germany’s record drop in GDP fuels extra concern that the rest of Europe might have a deeper slump,” he added.

Investor alarm spread in Europe on Thursday upon news of disappointing vast losses from the likes of Franco-German aircraft manufacturer Airbus, steelmaker ArcelorMittal and energy giant Eni.

Sentiment took another battering as British energy major Royal Dutch Shell posted a vast $18.1 billion (15.4 billion euro) second-quarter net loss, while lender Lloyds also sank into the red.

- ‘Cat among pigeons’ -

“A double-digit percentage decline in the German economy and abysmal results from Lloyds have put the cat among the pigeons,” said IG analyst Chris Beauchamp.

“Stocks are firmly in the red, with the FTSE 100 taking it on the chin … and (there are) heavy losses in Europe as well as investors’ fear that more bad news will be on the way.”

Meanwhile, fears that a second wave of the coronavirus pandemic could push the global recovery off track have largely eclipsed the Fed’s overnight pledge to provide as much support as necessary to the US economy.

Bank boss Jerome Powell said the Fed had noted that the spike in new US cases was denting economic activity and said recovery depended on staunching the virus so Americans could go out and spend again.

“Powell provided the markets with a healthy dose of reality, highlighting that the COVID-19 pandemic was far from over and that the US economy was facing mounting challenges,” warned City Index analyst Fiona Cincotta.

“Uncertainty remains high and the path forward depends on the virus.”

- Washington struggles -

While traders have a mountain of cash from governments and central banks around the world backing them up, the disease continues to dominate as the US death toll topped 150,000 and Australia’s state of Victoria noted a record number of new infections – developments highlighting the need for a vaccine.

- Key figures around 1400 GMT -

New York - Dow: DOWN 1.5 percent at 26,136.91 points

London - FTSE 100: DOWN 3.1 percent at 5,935.42

Frankfurt - DAX 30: DOWN 3.4 percent at 12,383.00

Paris - CAC 40: DOWN 2.2 percent at 4,850.70

EURO STOXX 50: DOWN 2.7 percent at 3,209.40

Tokyo - Nikkei 225: DOWN 0.3 percent at 22,339.23 (close)

Hong Kong - Hang Seng: DOWN 0.7 percent at 24,710.59 (close)

Shanghai - Composite: DOWN 0.2 percent at 3,286.82 (close)

Euro/dollar: DOWN at $1.1791 from $1.1792 at 2100 GMT

Dollar/yen: UP at 105.07 yen from 104.92 yen

Pound/dollar: DOWN at $1.2995 from $1.2997

Euro/pound: DOWN at 90.37 pence from 90.73

West Texas Intermediate: DOWN 1.5 percent at $40.64 per barrel

Brent North Sea crude: DOWN 1.4 percent at $43.17

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