By Huw Jones
LONDON (Reuters) - Wall Street was set to follow a tumbling Europe lower on Thursday, as reassuring earnings from bank heavyweight Morgan Stanley (NYSE:MS) were overshadowed by the failure of U.S. policymakers to agree a fiscal boost to counter fallout from COVID-19.
Europe's main markets were on course for their worst day in three weeks and U.S. S&P 500 futures (ESc1) were pointing to a 1% drop at the opening bell as investors also digested another rise in weekly jobless claims figures.
The U.S. Treasury Secretary said on Wednesday that a fiscal package before next month's presidential election would be difficult.
Morgan Stanley was a bright spot, beating expectations with a 26% jump in third quarter profit on the back of higher trading due to the pandemic making markets more volatile.
European shares were still down more than 2% at two-week lows, however, knocked by tougher curbs in London and Paris to fight the coronavirus, and ongoing difficulties in Brexit trade talks also a dampener.
Analysts said the biggest pullback in markets in three weeks was more of a pause than a fundamental shift, however.
"We have to be careful about reading too much into these moves ahead of the U.S. election," said Ned Rumpeltin, European Head of Currency Strategy at TD Securities
"There is a general risk-off sort of feel for the day. I don't really see today in terms of changes in overall trends and direction."
The pan-European STOXX 600 (STOXX) was down 2.3% to a near two-week low, with markets in London (FTSE) and Paris (FCHI) 2.1%-2.4% lower and Frankfurt (GDAXI) and Milan (FTMIB) both nearly 3% weaker, taking their queue from weaker markets in Asia overnight.
Thursday's weekly U.S. jobless claims figures showed a bigger than expected rise to 898,000 from 840,000 the previous week.
"It's all pointing to a greater hit to fourth quarter activity and warrants a degree of adjustment in market pricing," said Derek Halpenny, head of research at MUFG.
Graphic: Coronavirus second waves slamming Europe https://fingfx.thomsonreuters.com/gfx/mkt/ygdpznqjzpw/Pasted%20image%201602760074070.png
BREXIT ON EU SUMMIT MENU
A two-day summit of European Union leaders starts on Thursday as the EU and Britain continue their efforts to overcome stumbling blocks, such as fishing rights and competition safeguards, to agreeing a trade deal before the UK's Brexit transition arrangements end on Dec. 31.
The pound slipped 0.4% to $1.2950 whereas the euro drooped 0.25% against the dollar to $1.1716, its lowest in a week.
Investors will tune into European Central Bank President Christine Lagarde, who takes part in a debate on the global economy at 1600 GMT as part of the IMF and World Bank's annual meeting which is being held virtually.
In Asia, MSCI's broadest index of Asia-Pacific shares lost 1.3% with Hong Kong <.HIS> and India (NSEI) both down over 2% and Japan's Nikkei (N225) closing down 0.5%.
With traders seeking safety again, Germany's government bonds rallied to leave their yields at their lowest level since the March spread of COVID-19 caused a global meltdown in stock markets and other riskier assets. (DE10YT=RR).
Oil prices also fell as the renewed surge in the virus in large parts of the world underpinned concerns about economic activity.
Brent crude (LCOc1) futures dropped 3.3% to $41.87 a barrel, U.S. West Texas Intermediate (WTI) crude (CLc1) futures dropped back to $39.62 a barrel while gold
"If demand weakens noticeably, OPEC+ will have no choice but to call off its production increase if it does not want to risk a renewed oversupply and another price slide," Commerzbank (DE:CBKG) said.
