LDN - Business

Global shares begin second half with a whimper despite positive data

[July 01, 2020] By Tom Arnold

LONDON (Reuters) - Global stocks bogged down in worries about surging coronavirus cases in the United States on Wednesday, even as a slew of data hinted at signs of an economic recovery in Europe and Asia.

Germany's manufacturing sector contracted at a slower pace in June, while French factory activity rebounded into growth, data showed.

German retail sales rose sharply in May, reflecting a rebound in private consumption, while a recovery in China's factory activity offered further signs that the world's second largest economy may have passed the worst of the devastation caused by the pandemic.

Germany's jobless rate rose by 69,000 in June, far less than expected. Economic institute Ifo said Europe's largest economy will gradually recover after the slump caused by the pandemic and probably return to last year's level at the end of 2021.

Coronavirus cases surged, with the United States recording 47,000 new infections on Tuesday, its biggest single-day spike since the pandemic began.

MSCI's world shares index was 0.2% weaker after rising 18% for its biggest three-month gain since 2009 in the second quarter, but it still closed the first half around 8% lower from where it started the year.

After their best quarter since March 2015, European stocks turned negative, with the broader Euro STOXX 600 ebbing 0.7%.

"We are at the beginning of the quarter but it doesn't look very different from where we left the last one," said François Savary, chief investment officer at Swiss wealth manager Prime Partners, predicting "a further consolidation over the summer".

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.4%, led by gains in China. E-Mini futures for the S&P 500 were down 0.6%.

This followed a strong finish to the quarter on Wall Street but also a loss of momentum in recent weeks as U.S. COVID-19 infection rates have surged, with some states reimposing restrictions on business and personal activity.

The S&P 500 index rose 1.5% for an almost 20% gain over the past three months, fuelled by unprecedented central bank stimulus and hopes for a swift pandemic recovery, but it rose only 1.8% in June.

Coronavirus cases more than doubled in 14 U.S. states last month, a Reuters analysis showed, and fears are growing that the caseload could prompt fresh lockdowns.

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The London Stock Exchange Group offices are seen in the City of London, Britain, December 29, 2017. REUTERS/Toby Melville/File Photo

"The rise in COVID-19 infections is now triggering a reversal on the reopening strategy," said Rodrigo Catril, senior FX strategist at National Australia Bank in Sydney. "It remains to be seen if the U.S economy will continue to surprise over the coming month."

The U.S. government bond market remains in a cautious mood. Yields on benchmark 10-year government debt rose overnight to 0.6774%, but finished the quarter steady.

In Europe, Germany's 10-year yield rose to a one-week high, rising 2 basis points on the day to -0.44, helped by better than expected German retail sales.

UNWELCOME DEVELOPMENTS

China's introduction of sweeping new laws to crack down on dissent in Hong Kong also has investors eying geopolitical tensions with trepidation.

The laws have prompted fresh protests in the city and Washington has begun dismantling Hong Kong's special status under U.S. law.

"It's one of a number of geopolitical factors which is a negative for some asset classes now," said Imre Speizer, a foreign exchange strategist at Westpac in Auckland.

Currency markets were in a holding pattern before the next slew of data due to provide a snapshot of the U.S. recovery.

The dollar strengthened before U.S. manufacturing PMI and unemployment data. The euro fell 0.4% versus the dollar to $1.11900 .

U.S. manufacturing activity data on Wednesday is forecast to show a recovery from an 11-year low in April while the non-farm payrolls report on Thursday is expected to show the economy added 3 million jobs in June.

Gold prices rose to their highest in 8 years at $1,788.96 an ounce, before easing back slightly.

Brent crude rose 2.0% to $42.10 a barrel, while U.S. crude was up 2.1% at $40.10 a barrel, helped by the positive manufacturing data and an industry report showed crude stockpiles in the U.S. staged a bigger drop than expected.

(Additional reporting by Shriya Ramakrishnan in Bengaluru; Editing by Timothy Heritage/Mark Heinrich)

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