Global stocks retreat from record highs on stimulus concerns and rising Covid cases

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Vrasidas Neofytou
Head of Investment Research

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Global stocks retreat from record highs on stimulus concerns and rising Covid cases

Global financial markets slightly fall in Tuesday trade, retreating from their record highs over persistent anxieties about possible barriers to Joe Biden's $1.9T fiscal pandemic-relief stimulus and the rising Covid-19 cases around the world.

Uncertainty over the time and size of the US stimulus package:

US futures moved slightly lower on Tuesday amid softer risk appetite among investors over disagreements on President Joe Biden’s $1.9T stimulus package. The market worries about the timing of the package to be agreed as the Congress members debate about the size of the relief bill needed to stimulate the US economy. Even the Democratic Majority Leader Chuck Schumer notified yesterday that a complete bill could be four to six weeks away.

Covid worries and fresh lockdowns:

The market participants concern about the growing number of Covid cases around the world, especially in China. Many governments in Europe and Asia including China and Hong Kong have set additional strict lockdown measures to limit the spread of the new fast-spreading variant virus, increasing the economic damage in the local markets.

US markets:

The tech-heavy Nasdaq Composite rose 0.7% on Monday, hitting an intraday fresh all-time high of 13.700 before closed at 13.635, lifted by robust gains in some tech giants such as Apple, Microsoft, and Facebook.

The S&P 500 index also closed at record highs of 3.855, up 0.4% ahead of corporate earnings, while the industrial Dow Jones index slightly dropped 0.1% to 30.960 amid losses in Boeing and cyclical sectors over stimulus worries.

Asia-Pacific Markets:

Stocks in Asia retreated nearly 2% from their record highs in Tuesday trade following the overnight losses on Wall Street amid a general risk aversion sentiment and the geopolitical tension in the region.

The Hang Seng index in Hong Kong led to losses in Asia by 2.4%, following by 2% losses in China’s mainland indices after the boiling tensions in the Taiwan Strait and the South China Sea. Hence, South Korea’s Kospi followed with 2.2% losses, Japan’s Nikkei 225 slid 1%, while markets in Australia and India are closed for public holidays.

Commodities-Forex and Fed’s 2-day policy meeting:

WTI and Brent crude oil prices fell 1% on Tuesday morning to $52 and $55.50 per barrel respectively after China (the world’s largest fuel consumer) reported rising new virus cases and fresh restrictions, causing doubts over petroleum demand recovery in the country.

Gold and Silver prices rise above $1.850/oz and $25.50/oz respectively, gaining support from the falling 10-year US Treasury yields near 1.03%, despite the US dollar strengthen.

The DXY-US dollar index against major currencies rises to 90.50 while the EUR/USD retreated from the resistance level of 1.22, finding support near 1.21.

The recent strength in the safe-haven greenback came after the risk aversion mood over the speed and size of Biden’s stimulus bill, and ahead of the Federal Reserve’s two-day policy meeting, which is scheduled to begin later in the day.

Investors expect FED to maintain its dovish monetary policy and keep the zero interest rates for a longer time to help the US economy mitigate the pandemic-led damages.

The dovish Fed is a bearish signal for the US Treasury yields and US dollar while it is a bullish catalyst for the non-yielding gold and silver precious metals and other dollar-denominated commodities.

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