Stock markets fluctuated yesterday as hopes for the rollout of coronavirus vaccines and more huge stimulus out of Washington competed with fears over surging infections, tougher lockdowns and brewing political and social unrest in the United States, traders said.
The dollar traded mixed, while oil prices gained more than 1%.
The pound was up around half-a-percent versus the dollar, which weighed on the London stock market featuring numerous multinationals that earn substantial amounts in the US currency.
Bitcoin was much steadier after swings of 20% in recent days to trade up a much more modest 4.4% at $35,343.
“The fact that vaccines are being rolled out will be comforting for investors but the first quarter is shaping up to be far more painful than anticipated,” said Craig Erlam, analyst at Oanda trading group.
“This may dampen sentiment in the coming weeks, especially if corporate America raises concerns during fourth quarter earnings season, which kicks off later this week.”
Another focus of attention for traders is Washington, where Democrats are seeking a historic second impeachment of Donald Trump, who they accuse of inciting an attack on the Capitol Building that delayed certification of Joe Biden’s presidential election.
There is a worry that the move could distract from the Democrats’ plans for a bigger stimulus bill to stem the virus’ impact, with some warning the row could overshadow Biden’s first few months in office.
He has called for a huge package including $2,000 cash handouts, though analysts said that while markets would welcome a spending splurge, there were concerns about the fiscal implications.
Bets on another rescue deal have ramped up inflation expectations, with 10-year Treasury yields above one% for the first time since March and talk swirling that the US Federal Reserve could begin to consider winding down its vast bond-buying scheme.
“Ultimately it goes back to the 10-year,” Lynx Equity Strategies said in a client note.
A higher yield “points to higher inflation down the road — which is negative for stocks. We are not there yet, but as the 10-year inches higher — the closer we get”, it added.
Oil majors BP, Royal Dutch Shell and Total gained as crude prices rose on expectations of a drawdown in US
stockpiles.
“It’s a little bit of a pause for reflection after getting off to an absolute flyer this year,” said Michael Hewson, chief market analyst at CMC Markets.
“The main focus now is how much worse can it get in respect to Covid in the UK and Europe, and is China starting to see evidence of a second wave,” Hewson added.
There was little in the way of major corporate earnings news or key economic data as markets waited for the new earnings season on Wall Street, with banks JPMorgan, Citi and Wells Fargo reporting on Friday.
“The big takeaway from those will be, how much more will they set aside in terms of loan-loss provision, as they were quite heavy in 2020, and how many of the US banks restart buybacks and dividends,” Hewson said.
“I suspect it won’t be as many as people think.”
A selloff in bonds was fuelled by the prospect of more US government stimulus under President-elect Joe Biden, who takes office next week.
Yields were also propped up by markets bringing forward bets on Federal Reserve interest rate hikes to 2023, and a withdrawal or tapering of asset purchases before then.
The yield on benchmark US government 10-year debt, which rises when prices fall, gained 1.6 basis points to 1.149% after hitting a fresh 10-month high of 1.1580%.
S&P 500 futures were 0.14% higher.
Consolidation was a theme in Asia overnight as well, where MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5% after touching an all-time high on Monday, led by a 2.6% drop in South Korea as investors took some profit from a soaring Kospi.
Drugmakers lifted Japan’s Nikkei to a fresh three-decade high after reports of another effective Covid-19 treatment, though the index eased to be 0.16% lower in the afternoon.
Strong inflows helped Chinese blue chips rise 1.11%. A resurgent US dollar clung to four days of gains against other major currencies, holding the euro and yen close to multi-week lows.
Tokyo’s Nikkei 225 closed 0.1% up at 28,164.34 points, Hong Kong’s Hang Seng ended 1.3% up at 28,276.75 points and Shanghai’s Composite finished 2.2% higher at 3,608.34 points.
“We’ve seen a very strong week or so (in equities) and I think the lower moves we are seeing are a bit of profit-taking,” said Chad Padowitz, chief investment officer at Talaria Capital in Melbourne.
Overnight, the Nasdaq led modest losses on Wall Street, falling 1.3% as investors sold tech giants who have taken actions against Trump and his supporters.
Brent crude was up 0.68% at $56.04, while US crude traded at $52.65 per barrel, up 0.4%. Gold, which has been sold as US yields rise because it pays no interest, steadied at $1,853 an ounce, up 0.5%.
A view of the Tokyo Stock Exchange. The Nikkei 225 closed 0.1% up at 28,164.34 points yesterday.
