Global markets: sentiment from surge in COVID, stimulus stalemate

© Reuters. FILE PHOTO: A television reporter stands in front of a large screen displaying stock prices on the Tokyo Stock Exchange after the Tokyo market opened

By Marc Jones

LONDON (Reuters) – World stocks fell to a two-week low on Thursday and oil stabilized after another sharp decline as a spike in global COVID-19 cases and fierce US economic talks kept financial markets cautious.

The early equity declines in Europe were the fourth in a row, and a disappointing German consumer morale poll also meant this was the first drop of the week for the soaring euro.

On the continent, the number of coronavirus cases has risen to a record high. Spain was the first Western European country to have more than 1 million infections, and France, the UK and Italy have seen record increases in recent times.

The caution in the bond market also led to sensitive returns on Italian government bonds ahead of a 30-year bond sale as traders slipped back into very safe German Bunds.

“I think we were in the eye of the storm over the summer,” said Rabobank strategist Piotr Matys, comparing the decline in COVID-19 cases to the lull amid hurricanes.

“Some governments assumed the worst was over … but now the invisible enemy hits even harder and I worry about the fragile economic recovery.”

Sentiment was also lifted after U.S. President Donald Trump on Wednesday accused rival Democrats of unwillingness to compromise on fresh impetus, after progress was reported earlier in the day.

It remains unclear whether negotiations will continue ahead of the November 3rd US presidential and congressional elections.

“We still believe this deal will be elusive in the sense that what we are talking about is $ 1.88 trillion, roughly 9% of GDP,” said Carlos Casanova, senior economist at Union Bancaire Privee (UBP) in Hong Kong.

Spokeswoman Nancy Pelosi’s package is even higher at around 10% of GDP.

“Even if both sides manage to reach an agreement, given the tight deadline before the elections, it is unlikely that something like this can go smoothly through the Senate,” said Casanova.

In the forex markets, the dollar rose a modest 0.1% against the yen at 104.66, while the euro fell 0.12% to $ 1.1847.

However, versus a basket of large peers, the dollar appeared relatively unaffected by setbacks in economic talks after hitting a seven-week low and trading slightly higher at 92.736.

Overnight, MSCI’s broadest index for stocks in the Asia-Pacific region outside Japan was down 0.3%, while the closed-end index was down 0.7%.

CHOICE LOOMING

The uncertainty about passing a bill to stimulate a pandemic-hit economy comes as the United States also faces a new wave of COVID-19 cases.

Almost two-thirds of US states were in a danger zone for the coronavirus to spread, and six, including the Wisconsin campaign field, reported a record one-day increase in COVID-19 deaths on Wednesday.

Wall Street’s top three averages closed lower on Wednesday after a troubled trading session and futures markets later indicated another sluggish start.

“The focus is absolutely on how a key election victory can unleash fiscal stimulus,” said JP Morgan Asset Management global market strategist Hugh Gimber, but cautioned investors would have to carefully handle the US vote next month.

The US benchmark’s return fell to 0.8092% from a US closing price of 0.816% on Wednesday.

In the commodity markets, oil prices stabilized after heavy losses on Wednesday as higher US gasoline inventories indicated a renewed deterioration in fuel demand.

US West Texas Intermediate (WTI) crude oil futures were hovering near $ 40 a barrel, and futures were up 0.3% to $ 41.85.

Gold fell as the dollar rose, falling 0.4% to 1,916 an ounce.

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