Stocks in Europe and the US pulled back yesterday despite news of rebounding economic growth and robust tech earnings.
With just days remaining before the US presidential election and uncertainty over a key American stimulus package as well as renewed coronavirus lockdowns in Europe, there was scant sentiment for taking on risk.
London closed the day down marginally while Frankfurt shed 0.4%. Paris bucked the trend to add 0.5%.
Meanwhile on Wall Street, the Dow was down 0.9% in midday trade.
“Stocks remain under pressure (also) after global daily coronavirus cases hit a record high after breaching the 500,000 threshold,” said Joshua Mahony, analyst at IG trading group.
Eurozone output soared by a record 12.7% in the third quarter as the bloc bounced back from the depths of the coronavirus lockdown, official data showed yesterday.
But, despite the rebound, total gross domestic product in the 19-country zone is still 4.3% down on the third quarter of 2019.
In the European Union, GDP increased by 12.1% in the third quarter but remained 3.9% down on the same period last year.
The news came one day after official data showed the US economy expanded by a record 33.1% in the same period, after a 31.4% collapse in the previous three months.
Markets remain fearful however that the world economy could now be heading for a double-dip recession.
“Growth data for the third quarter have impressed today, with Spanish, German, French, and eurozone readings all coming in above market estimates,” Mahony said.
“However, it comes as no surprise to see markets fail to post a proportionate rally (due to) fears of a double-dip recession.”
Equities and oil prices have endured a torrid week as governments are forced to act to contain a second wave of disease in the northern hemisphere.
European Central Bank boss Christine Lagarde on Thursday warned that the eurozone economy was “losing momentum more rapidly than expected” after a partial summer rebound.
Another source of angst is the US presidential election on Tuesday.
While Democratic challenger Joe Biden leads in most polls, some key states remain very close and President Donald Trump has hinted he may contest the results if the vote count goes against him.
“Uncertainty surrounding the presidential election is a factor as it is likely to have a big impact on the proposed stimulus package – when it might be delivered and what size of a programme could be revealed,” said market analyst David Madden at CMC Markets UK.
Even tech companies like Apple, Amazon, Google-parent company Alphabet, and Facebook posting results that beat expectations failed to tempt investors, with the tech-heavy Nasdaq Composite slumping 2.1percent in midday trading.
“A bumper day of tech earnings on Thursday failed to inspire confidence in investors,” said analyst Craig Erlam at online currency trading house Oanda.
Meanwhile Southern European government bond yields kept near recent lows yesterday as markets focused on stimulus the ECB will deliver in December, which overshadowed news that Spain became the latest European country to impose tougher rules to curb the spread of the coronavirus.
Spain will be under a state of emergency until early May, giving regions legal backing to decide curfews and restrict travel to try and contain rampant Covid-19 contagion.
Bond yields in Spain and Portugal, however, held near 10-day lows hit on Thursday, when the European Central Bank clearly signalled it will provide more stimulus at its next meeting to contain the growing fallout from a second wave of infections.
Spanish and Portuguese 10-year bond yields were last unchanged on the day around 0.14% and 0.12% respectively.
Italian 10-year bond yields were last trading up 1 basis point at 0.70%.
In money markets, three and six-month Euribor interbank borrowing rates hit new record lows of -0.523% and -0.521% respectively yesterday on the expectation that the ECB’s lending target will be easier to hit, said Lyn Graham-Taylor, fixed income strategist at Rabobank.
“There’s expectation that the ECB will extend the situation where you’re able to effectively borrow money at an interest rate of -1%...because borrowing using targeted liquidity operations (TLTROs) that’s the lowest possible rate you can pay as a bank,” Graham-Taylor said.
Most analysts believe that the ECB’s choice of stimulus in December will be to extend its pandemic emergency bond-buying programme, with some saying that the targeted liquidity operations (TLTROs) may also be on the agenda.
Money markets project a roughly 25% probability the ECB will lower the benchmark interest rate to -0.60% from the current -0.50%.
“Even with the Covid-19 situation worsening, this leaves room for spreads to tighten and rates to grind lower,” ING analysts said, referring to the risk premium countries like Italy pay for their debt on top of German borrowing costs.
Benchmark German 10-year Bund yields were last up 1 bp at -0.62%.
German retail sales fell more than expected in September, data showed yesterday, first-estimate eurozone inflation remained stable in October and third quarter GDP growth beat analyst expectations.
In London, the FTSE 100 closed down less than 0.1% to 5,577.27 points; Frankfurt – DAX 30 ended down 0.4% to 11,556.48 points; Paris – CAC 40 closed up 0.5% to 4,594.24 points and EURO STOXX 50 ended down less than 0.1% to 2,958.61 points yesterday.
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