Stocks slip on virus fears, dollar hits highest in 2-1/2 weeks
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[January 11, 2021]
By Ritvik Carvalho
LONDON (Reuters) - World shares came off
record highs on Monday as caution over rising coronavirus cases saw some
profit-taking from investors, while elevated Treasury yields helped the
dollar hit its highest levels in over two and a half weeks.
Worldwide coronavirus cases surpassed 90 million on Monday, according to
a Reuters tally.
European shares dipped in early trading, with rising coronavirus cases
across the continent and China dragging down commodity stocks. Germany's
DAX lost 0.55%, Britain's FTSE 100, Italy's FTSE MIB, and France's CAC
40 fell about half a percent each, and Spain's IBEX fell 0.2%.[.EU]
The pan-European STOXX 600 index was down 0.3%.
With Asian stock markets also lower, MSCI's All Country World index,
which tracks stocks across 49 countries, was down 0.2%, just off
Friday's record high.
Futures for the S&P 500 slipped 0.6% from record highs, after gaining
1.8% last week.
"There was an awful lot of optimism about prospects for stimulus with
the Biden administration winning those two Georgia Senate seats," said
Michael Hewson, chief markets analyst at CMC Markets in London, noting
Friday's record highs that followed the Democrats winning control of the
U.S. Senate.
"Friday's (U.S.) payrolls report was disappointing, underscoring the
need for more significant fiscal response. But as we head into week two
(of the new year), I think some of that optimism has been tempered a
little bit with profit-taking."
In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan
dipped 0.2%, having surged 5% last week to record highs. Japan's Nikkei
was closed for a holiday after ending at a 30-year high on Friday.
South Korea reversed an early jump to fall 0.1%, and Chinese blue chips
fell 1%.
Last week, Wall Street bankers warned of toppy stock markets and a
looming retreat after exuberance from unprecedented economic stimulus
had led to "frothy" asset prices.
"I think there's a perception perhaps markets are getting slightly ahead
of themselves," Hewson said.
Mark Haefele, chief investment officer at UBS Global Wealth Management,
said in a note to clients that he didn't see valuations as a barrier for
the equity rally to continue, "especially against the backdrop of
continued policy stimulus and the rollout of vaccines."
Longer-term Treasury yields were at their highest since March after
Friday's weak jobs report fanned speculation of more U.S. fiscal
stimulus now that the Democrats have control of the government.
President-elect Joe Biden is due to announce plans for "trillions" in
new relief bills this week, much of which will be paid for by increased
borrowing.
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A man wearing a facial mask, following the coronavirus disease
(COVID-19) outbreak, stands in front of an electric board showing
Nikkei (top in C) and other countries stock index outside a
brokerage at a business district in Tokyo, Japan, January 4, 2021.
REUTERS/Kim Kyung-Hoon
At the same time, the Federal Reserve is sounding content to put the
onus on fiscal policy. Vice Chair Richard Clarida said there would
be no change soon to the $120 billion of debt the Fed is buying each
month.
With the Fed reluctant to purchase more longer-dated bonds, 10-year
Treasury yields jumped almost 20 basis points last week to 1.12%,
the biggest weekly rise since June.
Mark Cabana at BofA warned stimulus could further pressure the
dollar and cause Fed tapering to begin later this year.
"An early Fed taper creates upside risks to our year-end 1.5%
10-year Treasury target and supports our longer-term expectations
for neutral rates moving towards 3%," he said in a note to clients.
The poor payrolls report will heighten interest in U.S. data on
inflation, retail sales and consumer sentiment.
Earnings will also be in focus as JP Morgan, Citigroup and Wells
Fargo are among the first companies to release fourth-quarter
results on Jan. 15.
The climb in yields in turn offered some support to the dollar,
which rose to its highest in over two weeks at 90.520 against a
basket of currencies from last week's low of 89.206.
The euro fell to its lowest since Dec. 23 at $1.2155, from a recent
higher of $1.2349, breaking support around $1.2190. The dollar also
gained to 104.18 yen from a trough of 102.57 hit last week.
Gold, which pays no interest, rose 0.1% to $1,850 an ounce after
skidding as low as $1,816. [GOL/]
Brent crude oil prices fell, hit by renewed concerns about global
fuel demand amid tough coronavirus lockdowns across the globe, as
well as the stronger dollar.[O/R]
Brent crude futures fell 1.3% to $55.25. U.S. crude futures lost
0.7% to $51.84 a barrel.
(Reporting by Ritvik Carvalho; additional reporting by Wayne Cole in
Sydney; editing by Larry King and Mark Potter)
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