LONDON (Reuters) – Global stocks retreated from their record highs on Monday as wary of rising coronavirus cases led to some profit-taking by investors, while Treasury yields remained close to their 10-month high, indicating deflationary expectations. Global expected US fiscal stimulus.
Coronavirus cases worldwide topped 90 million on Monday, according to a Reuters tally.
European stocks plunged in early trade, with coronavirus cases soaring across the continent, and China withdrawing commodity shares. The German DAX index lost 0.75%, the British FTSE 100 index, the Italian FTSE MIB and the French CAC 40 lost about half a percent each, and the Spanish IBEX index fell by 0.1%.[.EU]
With Asian equity markets also lower, the MSCI All Country World Index, which tracks stocks in 49 countries, fell 0.2%, away from Friday’s high.
S&P 500 futures are down 0.6% from record highs, after rising 1.8% last week. EUROSTOXX 50 futures are 0.1% lower, FTSE futures are flat.
“There has been a lot of optimism about the stimulus prospects with the Biden administration winning both seats in the Georgia Senate,” said Michael Hewson, chief market analyst at CMC Markets in London, referring to record highs on Friday.
“Friday’s payroll report was disappointing, confirming the need for a greater financial response. But as we approach the second week (of the new year), I think some of this optimism has been tempered a bit by profit taking.”
In Asia, the MSCI Asia Pacific Index of Asia Pacific stocks outside of Japan fell 0.1%, after rising 5% last week to record highs. Japan’s Nikkei was on holiday after closing at a 30-year high on Friday.
South Korea reversed an early jump, falling 0.1%, with leading Chinese stocks tumbling 1%.
Wall Street bankers warned last week of an improving stock market and an imminent decline after a plethora of unprecedented economic stimulus led to “butter” asset prices.
“I think there is a perception that the markets might be a little bit ahead of themselves,” said Hewson.
Mark Hefel, chief investment officer at UBS Global Wealth Management, said in a note to clients that he did not see valuations as an obstacle to continued rally in stocks, “especially against the backdrop of continued policy stimulus and vaccine launches.”
Long-term Treasury yields were at their highest since March after a weak jobs report on Friday sparked speculation of more US fiscal stimulus now that the Democrats take control of the government.
President-elect Joe Biden is set to announce plans for “trillions” in new relief bills this week, many of which will be paid for by increased borrowing.
At the same time, the Federal Reserve appears convinced to put the burden on fiscal policy. Vice President Richard Clarida said there will soon be no change to the $ 120 billion debt that the Fed buys each month.
With the Fed reluctant to buy more long-term bonds, the 10-year Treasury yield jumped nearly 20 basis points last week to 1.12%, the biggest weekly rise since June.
Treasury futures lost another 3 points early Monday.
Mark Cabana of Bank of America warned that the stimulus could increase pressure on the dollar and cause the Federal Reserve to start tapering later this year.
He said in a note to clients: “The early Federal Reserve’s gradual reduction creates bullish risks to our Treasury end-of-year target of 1.5% for 10 years and supports our long-term outlook for neutral rates moving towards 3%.”
The weak jobs report will increase interest in US data on inflation, retail sales and consumer confidence.
Earnings will also be in focus as JP Morgan, Citigroup and Wells Fargo were among the first companies to release fourth-quarter results on January 15th.
The rise in yields, in turn, provided some support for the dollar, which rose to 90.338 against a basket of currencies, from last week’s low of 89.206.
The Euro slipped to $ 1.2185 from a recent high of $ 1.2349, and broke support around $ 1.2190. The dollar also rose to 104.18 yen from 102.57 yen last week.
The sudden spike in bond yields undermined gold, which is paying no interest, and fell again 1.1% to $ 1,828 an ounce from a recent high of $ 1,959. [GOL/]
Oil prices have entered profit-taking after hitting their highest in nearly a year on Friday, rising 8% in the week following Saudi Arabia’s pledge to cut production. [O/R]
Brent crude futures fell 0.7 percent to $ 55.56. U.S. crude futures lost 0.3 percent to $ 52.10 a barrel.
(Ritvik Carvalho Report) Additional reporting by Wayne Cole in Sydney; Edited by Larry King