Asian equities begin the week in uncertain mood

Sydney — Asian shares got the week off to a hesitant start on Monday as surging coronavirus cases in Europe and the US undermined the global outlook, while China’s leaders meet to ponder the future of the economic giant.

The US has seen its highest ever number of new Covid-19 cases in the past two days, while France also set unwanted case records and Spain announced a state of emergency.

That combined with no clear progress on a US stimulus package to pull S&P 500 futures down 0.6%. Eurostoxx 50 futures eased 0.7% and FTSE futures 0.4%.

MSCI’s broadest index of Asia-Pacific shares outside Japan inched up 0.1%, still short of its recent 31-month peak. Japan’s Nikkei dithered either side of steady, and South Korea’s main index lost 0.3%.

Chinese blue chips shed 0.5% as the country’s leaders met to chart the nation’s economic course for 2021-2025, balancing growth with reforms amid an uncertain global outlook and deepening tension with the US.

A packed week for monetary policy sees three main central banks hold meetings. The Bank of Canada and Bank of Japan are expected to hold fire for now, while the market assumes the European Central Bank will sound cautious on inflation and growth even if they skip a further easing.

Data due out Thursday is forecast to show US economic output rebounded by 31.9% in the third quarter, after the second’s quarter’s historic collapse, led by consumer spending.

Analysts at Westpac noted that such a bounce would still leave GDP about 4% lower than at the end of last year, with business investment still lagging badly.

“To fully recover the activity lost, additional meaningful fiscal stimulus is a must,” they argued in a note.

The US presidential election will again loom large as markets move to price in the chance of a Democratic president and Congress, which would likely lead to more government spending and borrowing down the road.

That outlook drove US 10-year treasury yields to their highest since early June last week at 0.8720%. They were trading at 0.83% on Monday.

“We have raised the probability of a Democratic sweep, already our base case, from 40% to just over 50% and have increased our expectation of [Democratic candidate Joe] Biden to win from 65% to 75%,” analysts at NatWest Markets wrote in a note.

“We see steeper US yield curves and a weaker dollar as likely to prevail in our base case.”

The dollar was flatlining on Monday, having fallen broadly last week. The euro was holding at $1.1836 and just under its recent top of $1.1880, while the dollar was pinned at ¥104.86 and not far from last week’s trough of ¥104.32.

The dollar index was a fraction firmer at 92.904, after shedding almost 1% last week.

In commodity markets, gold edged down 0.1% to $1,898/oz.

Oil prices fell further in anticipation of a surge in Libyan crude supply and demand concerns caused by surging coronavirus cases in the US and Europe.

Brent crude futures lost 73c to $41.04 a barrel, while US crude also fell 73c to $39.12.

Reuters