Global stocks falter as COVID-19 fears triumphant hopes of recovery

LONDON (Reuters) – Global stock markets faltered on Monday as rising COVID-19 cases offset investor hopes of a rapid economic recovery, even after data shows China’s economy rebounded faster than expected. in the fourth quarter of 2020.

European stocks as measured by the STOXX 600 index struggled for direction, the latest trade rose 0.1% at 1446 GMT, after the failed merger talks between French retailer Carrefour and Alimentation Couche-Tard lowered the opening indicator. The continent’s 50 largest stocks fell by 0.2% [.EU]

In Asia, China’s blue chips gained 1.1% after the economy grew 6.5% in the fourth quarter, compared with a year earlier, beating forecasts by 6.1%.

Industrial production in December also exceeded estimates, although retail sales fell short of expectations.

“The recovery in domestic demand still lacks solid support,” said Lauri Halikka, fixed income and FX expert at SEB. “Sporadic virus outbreaks have intensified short-term downside risks.”

China has reported more than 100 new cases of COVID-19 for the sixth consecutive day, with the rise of infections in the Northeast fueling concern of another wave as hundreds of millions of people travel for the New Year holidays lunar.

The new tough controls in the city of Gongzhuling in Jilin Province, which has a population of around 1 million people, bring the total number of people stranded to over 29 million.

Hallika said the impact of the latest regional blocs and mass testing would likely be limited and short-lived.

The economic recovery in China was in stark contrast to that of the United States and Europe, where the spread of the coronavirus hit consumer spending, underscored by poor US retail sales reported on Friday.

Meager US consumer spending data last week helped Treasuries cut some of their recent heavy losses and 10-year yields traded 1.097%, down from last week’s high of 1.187%.

The more sober mood, in turn, strengthened the safe haven US dollar, capturing a deeply short bear market. Speculators increased their net short position on the dollar to the highest since May 2011 in the week ending 12 January.

There are also clear doubts about how much of US President-elect Joe Biden’s stimulus package will get past Congress given Republican opposition, and the risk of further violence at his inauguration Wednesday.

BUBBLE?

Elsewhere in Asian markets, the Japanese Nikkei slipped 1% and moved away from a maximum of 30 years.

The MSCI All Country World Index, which tracks equities from 49 countries, was trading down 0.05%, down for a second session after hitting record highs just last week.

E-Mini futures for the S&P 500 traded flat, although Wall Street will be closed on Monday for a holiday.

Recent price action in the markets has prompted investors to question whether asset markets may be overvalued.

In a monthly letter to clients last week, Mark Haefele, chief investment officer of UBS Global Wealth Management, said all the preconditions for a bubble were in place.

“Funding costs are at an all-time low, new entrants are being drawn into the markets, and the combination of high accumulated savings and low prospective returns on traditional assets creates both the means and the desire to engage in speculative activity,” he said.

He warned that in the coming months, investors will need to pay particular attention to the “risks of a monetary policy reversal, rising equity valuations and the post-pandemic recovery rate.”

Haefele said however that while he saw pockets of speculation, the broader stock market was not in a bubble.

The cryptocurrency’s bitcoin was up 1.6%, reaching $ 36,393.

The dollar index fell 0.06% to 90.818, its strongest since Dec 21, and on from its 2-1 / 2 year low minimum at 89,206.

The euro was flat at $ 1.2072, its lowest since December 2, while the dollar gained 0.15% against the yen at 103.73 and well above its recent low at 102.57.

The European Central Bank will tackle more questions this week on increasingly difficult prospects just a month after unleashing new stimulus to support the euro zone economy.

The Canadian dollar fell to $ 1.2792 per dollar after Reuters reported Biden planned to revoke the permit for the Keystone XL pipeline.

Biden’s choice for Treasury Secretary Janet Yellen should rule out the search for a weaker dollar during Tuesday’s testimony, the Wall Street Journal reported.

Gold prices gained 0.3% to $ 1,833 an ounce, from its January high of $ 1,959.

Crude oil prices took profit on concerns that the spread of tightening locks globally would hurt demand, a decline that also dragged the Russian ruble down 1.1%.

Brent crude futures fell 0.1% to $ 55.03 a barrel, while US crude remained unchanged at $ 52.34.

Ritvik Carvalho reporting; Wayne Cole’s additional reportage in Sydney; Editing by Angus MacSwan, Hugh Lawson and Alison Williams