LONDON (Reuters) - Share markets are wavering after snapping a five-day winning streak on Tuesday when world stocks tumbled 1% and all three U.S. indexes closed in the red.
This morning, Wall Street futures and European equities are both lower, Treasury yields are close to the one-week lows they plumbed on Tuesday and German yields are 2 basis points lower. China's Shanghai and Shenzhen benchmarks continued to march higher in what's widely seen as a state-sanctioned rally.
In keeping with the jittery mood, the dollar is holding firm as is gold. The Chinese rally has stoked demand for commodities, pushing Shanghai copper to its highest in more than a year. Chinese equity gains – the seventh day in a row – also pushed emerging equities 0.7% higher.
The most obvious explanation for the pullback is the rise in U.S. coronavirus cases, with 3 million confirmed cases and localised activity restrictions. Atlanta Fed President Rafael Bostic said there was a real sense the coronavirus crisis "might go on longer than we have planned for".
Criticism of U.S President Donald Trump's handling of the crisis is seen damaging his re-election chances, forcing Wall Street to contend with the possibility of a Democrat administration, higher taxes and tighter regulation.
Markets may also be hankering after another dose of stimulus – Fed Vice Chair Richard Clarida said there was no limit to how much bond buying the Fed could do.
The Cleveland Fed’s Loretta Mester, meanwhile, called for more help from the fiscal side. She may have hit the nail on the head — there’s some unease as the scheme to supplement U.S. jobless payments expires at the end of July just as the COVID-19 spike threatens to derail new hiring.
Consultancy Oxford Economics points out the worsening coronavirus comes just as liquidity provision from central banks and governments is slowing – central banks’ balance-sheet growth isn’t accelerating any more, while some governments seem wary of further fiscal measures that risk adding to debt.
Barclays said this morning in its annual equity-gilt study that while all the extra borrowing is needed, deficits will need to be addressed some day, with higher taxes part of the solution.
Speaking of fiscal stimulus, British finance minister Rishi Sunak is expected to announce measures to counter the jump in unemployment. Aside from spending 3 billion pounds to improve energy efficiency, he could announce VAT cuts, lower property purchases taxes and vouchers to aid hospitality businesses. The pound is holding near three-week highs before his speech.
In European corporate news, AstraZeneca and Merck & Co said their cancer treatment Lynparza won European Union approval for treating a form of pancreatic cancer.
Shares in Traton were down 3.6% after the company announced management changes. Deutsche Post was up 1.3% after reporting a 16% rise in second-quarter operating profit.
In coronavirus-linked bad news, logistics company DHL may cut as many as 2000 UK jobs, the Unite trade union said; FirstGroup warned on its ability to continue as a going concern, after posting an annual operating loss and plunging passenger volumes; OMV second-quarter output dropped 5% in the wake of the coronavirus pandemic.
In emerging markets, China’s yuan is near 7 to the dollar after briefly breaking through the threshold on Tuesday. Nigeria’ naira fell 5.5% on Tuesday following central bank FX sales at a lower rate — possibly after pressure from lenders and markets to unify its plethora of exchange rates. Non-deliverable forwards see the naira losing a fifth of its value over the next 12 months.
— A look at the day ahead from EMEA deputy markets editor Sujata Rao. The views expressed are her own —