Global markets: Sentiment sapped by COVID surge, stimulus stalemate
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[October 22, 2020]
By Marc Jones
LONDON (Reuters) - World shares slid to a
two-week low on Thursday, and oil steadied after another heavy fall, as
a surge in global COVID-19 cases and fractious U.S. stimulus talks kept
financial markets cautious.
Europe's early equity falls were their fourth in a row, while a
disappointing German consumer morale survey also meant it was the first
dip of the week for the high-flying euro.
The continent has seen the number of coronavirus cases surge to a record
high, with Spain becoming the first Western European country to exceed 1
million infections and France, Britain and Italy all setting record
increases recently.
Bond market caution also ushered sensitive Italian government debt
yields higher ahead of a 30-year bond sale there, as traders drifted
back into uber-safe German Bunds.
"In the summer we were in the eye of the storm, I think," said Rabobank
strategist Piotr Matys, likening the drop in COVID-19 cases to the lull
that occurs in the middle of hurricanes.
"Some governments assumed the worst was over... but now the invisible
enemy is hitting even harder and I am worried about the fragile economic
recovery."
Sentiment was also being buffeted after U.S. President Donald Trump
accused rival Democrats on Wednesday of being unwilling to craft an
acceptable compromise on fresh stimulus, following reports of progress
earlier in the day.
It remains unclear whether negotiations will continue ahead of the U.S.
presidential and congressional elections on Nov. 3.
"We still think that this deal will remain elusive in the sense that
this amount that we are talking about, $1.88 trillion, that's about 9%
of GDP, said Carlos Casanova, a senior economist at Union Bancaire
Privee (UBP) in Hong Kong.
Speaker Nancy Pelosi's package is even higher at around 10% of GDP.
"Even if both sides do manage to reach an agreement, given the tight
deadline ahead of the election it's unlikely that something like that
would be able to go through the Senate smoothly," said Casanova.
In the currency markets, the dollar was a modest 0.1% higher against the
yen at 104.66, while the euro's dip saw it notch down 0.12% to $1.1847.
But against a basket of major peers the dollar appeared relatively
unaffected by setbacks to stimulus talks, steadying after touching a
seven-week low to trade slightly higher at 92.736.
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A TV reporter stands in front of a large screen showing stock prices
at the Tokyo Stock Exchange after market opens in Tokyo, Japan
October 2, 2020. REUTERS/Kim Kyung-Hoon/File Photo
Overnight, MSCI's broadest index of Asia-Pacific shares outside
Japan had slipped 0.3%, while the Nikkei closed 0.7% lower.
ELECTION LOOMING
Uncertainty over the passage of a bill to stimulate a
pandemic-ravaged economy comes as the United States also faces a new
wave of COVID-19 cases.
Nearly two-thirds of U.S. states were in a danger zone of
coronavirus spread and six, including election battleground
Wisconsin, reported a record one-day increase in COVID-19 deaths on
Wednesday.
Wall Street's three major averages closed lower on Wednesday after a
choppy trading session, and futures markets pointed to another
subdued start later.
"The focus is absolutely on how a decisive win in this election can
unlock fiscal stimulus," J.P. Morgan Asset Management global market
strategist Hugh Gimber said, cautioning however that investors
needed to treat next month's U.S. vote carefully.
The yield on benchmark U.S. 10-year Treasury notes ticked down to
0.8092%, from a U.S. close of 0.816% on Wednesday.
In commodity markets, oil prices steadied after sharp losses on
Wednesday, when higher U.S. gasoline inventories pointed to
deteriorating fuel demand again.
U.S. West Texas Intermediate (WTI) crude futures hovered near $40 a
barrel and Brent crude futures were 0.3% higher at $41.85.
Gold eased as the dollar edged up, with spot gold down 0.4% at 1,916
per ounce.
(Reporting by Andrew Galbraith in Shanghai; Additional reporting by
Jessica DiNapoli in New York; Editing by Jane Wardell, Michael
Perry, Kim Coghill and Alex Richardson)
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