LONDON (Reuters) – World stocks fell from record highs Monday as investors were cautious of rising coronavirus cases, while Treasury yields stayed close to their 10-month high, indicating expectations for global reflation on anticipated US fiscal stimulus.
According to Reuters figures, there were more than 90 million cases of coronavirus worldwide on Monday.
European stocks fell during early trading, with rising cases of coronavirus across the continent and China dragging commodity stocks down. The German DAX lost 0.75%, the UK FTSE 100, the Italian FTSE MIB and the French CAC 40 each fell about half a percent, and the Spanish IBEX fell 0.1%.[.EU]
With Asian stock markets also lower, the MSCI’s All Country World index, which tracks stocks in 49 countries, fell 0.2%, just past Friday’s record.
Futures for the S&P 500 fell 0.6% from record highs, after gaining 1.8% last week. EUROSTOXX 50 futures eased 0.1% and FTSE futures remained stable.
“There was tremendous optimism about the outlook for stimulus measures as the Biden administration won two seats in the Georgia Senate,” said Michael Hewson, chief market analyst at CMC Markets in London, recording Friday’s record highs.
Friday’s salary report was disappointing and underlined the need for more significant tax measures. But as we enter week two (of the New Year), I think some of that optimism has been tempered a bit by profit-taking. “
In Asia, MSCI’s widest index of Asia-Pacific stocks outside Japan fell 0.1% after a 5% rise last week to record highs. Japan’s Nikkei was on vacation after closing at a 30-year high on Friday.
South Korea made an early jump and fell 0.1%, and Chinese blue chips were down 1%.
Last week, Wall Street bankers warned of volatile stock markets and an impending pullout after the exuberance of unprecedented economic stimulus led to “frothy” asset prices.
“I think there is a perception that the markets might be a little ahead of themselves,” said Hewson.
Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note to clients that he does not see valuations as a barrier to the continuation of the equity rally, “especially against the background of ongoing policy stimulus and the roll-out of vaccines. “
Longer-term government bond yields were the highest since March after Friday’s weak jobs report sparked speculation of more US fiscal stimulus now that Democrats have control of the government.
President-elect Joe Biden will this week announce plans for “trillions” of new emergency bills, much of which will be paid by increasing loans.
At the same time, the Federal Reserve sounds happy to tax its tax policy. Vice Chairman Richard Clarida said the $ 120 billion in debt the Fed buys every month would not change any time soon.
As the Fed was reluctant to buy longer-dated bonds, yields on 10-year Treasury bonds rose nearly 20 basis points last week to 1.12%, the largest weekly increase since June.
Treasury futures lost another 3 ticks early Monday.
BofA’s Mark Cabana warned that stimulus measures could put further pressure on the dollar, which could force the Fed to wind down later this year.
“An early run-off from the Fed creates upside risks to our 1.5% ten-year Treasury target by the end of the year and supports our long-term outlook for a neutral interest rate approaching 3%,” he said in a note to clients.
The poor salary report will increase interest in US data on inflation, retail sales and consumer confidence.
Earnings will also be in the center as JP Morgan, Citigroup and Wells Fargo are among the first companies to publish fourth quarter results on January 15.
The rise in yields, in turn, provided some support for the dollar, which had risen to 90,338 against a basket of currencies from last week’s low of 89,206.
The euro retreated to USD 1.2185 from a recent high of USD 1.2349 and broke the support around USD 1.2190. The dollar also rose to 104.18 yen from a low of 102.57 last week.
The sudden rise in bond yields undermined gold, which pays no interest, falling 1.1% to $ 1,828 an ounce from its recent high of $ 1,959. [GOL/]
Oil prices made gains after hitting their all-time high in nearly a year on Friday, rising 8% in the week after Saudi Arabia pledged to cut production. [O/R]
Brent crude oil futures fell 0.7% to $ 55.56. US crude oil futures lost 0.3% to $ 52.10 a barrel.
Reporting by Ritvik Carvalho; additional reporting by Wayne Cole in Sydney; edited by Larry King