Shares struggle to shake off bearish mood
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[September 11, 2020]
By Tom Arnold and Hideyuki Sano
LONDON/TOKYO (Reuters) - European shares
struggled for momentum on Friday as doubts about extra monetary stimulus
and overnight falls in U.S. big tech shares kept investors on edge.
Elevated fears over a messy hard Brexit added to the bearish sentiment,
putting sterling on track for its worst-week since March after the
European Union told Britain it should urgently scrap a plan to break
their divorce treaty.
In other political wrangling, the U.S. Senate on Thursday killed a
Republican bill that would have provided around $300 billion in new
coronavirus aid, as Democrats seeking far more funding prevented it from
advancing.
That followed European Central Bank President Christine Lagarde earlier
in the day appearing to rule out measures to weaken the euro.
"Investors were disappointed," said Milan Cutkovic, market analyst at
AxiCorp. "They were hoping that the central bank will boost the stock
market rally by paving the way for further stimulus measures and talking
down the euro.
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"But ECB President Christine Lagarde sounded less dovish, and her
remarks about the strong euro left markets unimpressed."
The pan-European STOXX 600 <.STOXX> opened lower before gaining 0.2%.
MSCI's broadest index of Asia-Pacific shares outside Japan
<.MIAPJ0000PUS> added 0.4%, moving away from a one-month trough touched
earlier this week. Japan's Nikkei <.N225> rose after Tokyo dropped its
coronavirus alert by one notch from the highest level as COVID-19 cases
trend down.
U.S. futures were higher, pointing to a recovery on Wall Street after
losses on Thursday put the S&P 500 <.SPX> and the Nasdaq Composite <.IXIC>
on course for a second straight week of losses. On Friday, Nasdaq 100
futures <NQc1> were up 1.3% and S&P 500 futures <ESc1> 0.9% firmer.
The NYSE Fang+ index of big 10 tech companies .NYFANG has lost 5.4% so
far this week -- its biggest weekly loss since the market turmoil in
March if sustained by the end of Friday.
Still, the index is more than double its March trough and investors have
gathered that their high valuations are justifiable in light of near
zero interest rates in much of the developed world and massive liquidity
the world's central banks have created.
Many investors have said the selloff was a healthy correction.
Yet, with the world's stocks still trading near the most expensive
levels relative to profit outlook since the 2000 tech bubble, some
analysts called for caution.
"Global shares had rallied on expectations of economic recovery from
lockdowns. But as the autumn begins (in the northern hemisphere), people
wonder if the coronavirus infections could worsen," said Kozo Koide,
chief economist at Asset Management One.
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The German share price index DAX graph is pictured at the stock
exchange in Frankfurt, Germany, August 28, 2020. REUTERS/Staff
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"You never know if vaccine deployment is that easy nor if banks need
to aside more provisions for struggling firms in hospitality sector.
Considering all that, investors are likely to question the current
valuations can be justified," he said.
In currency markets, the British pound advanced 0.3% to 1.2840 <GBP=D3>
but stayed flat versus the euro <EURGBP=D3> after one of the
heaviest selloffs this year sent the pound falling nearly 2% against
the euro on Thursday. [FRX]
The European Union is ramping up preparations for a tumultuous end
to the four-year Brexit saga after Britain explicitly said this week
that it plans to break international law by breaching parts of the
Withdrawal Agreement treaty that is signed in January.
After crashing by a record 20% in the second quarter, Britain's
economy grew by 6.6% in July, slower than June's monthly rate, the
Office for National Statistics (ONS) said.
The euro rose slightly on Friday and was last trading up 0.2% at
$1.1841 <EUR=EBS> after Thursday's ECB press conference. But any
move higher may be curtailed, however, by ECB chief economist Philip
Lane's warning on Friday that a strong euro will further dampen
price pressures.
The U.S. dollar was set for a second week of gains, an index which
tracks it against major currencies showed <=USD>. It gained
overnight as U.S. equity market jitters had investors sticking to
safer assets.
Government bond yields across the euro area fell after Lane's
comments that inflation will be persistently low in the coming
years.
Oil prices were under pressure from a surprise rise in U.S.
stockpiles and weak demand due to the coronavirus pandemic.
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Brent crude <LCOc> was down 0.4% at $39.91 a barrel after falling
nearly 2% on Thursday. U.S. crude <CLc1> dropped 0.2% to $37.23 a
barrel, having fallen 2% in the previous session. [O/R]
As the U.S. dollar rebounded, gold <XAU=> was down 0.5% at $1,943.53
per ounce after hitting its best level since Sept. 2 on Thursday. [GOL/]
(Editing by Toby Chopra)
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