Global shares fall on stricter virus lockdowns in Europe

London/Shanghai — Global shares stumbled on Friday as hopes of a fiscal boost provided by a $1.9-trillion US stimulus plan were smothered by the prospect of stricter lockdowns in France and Germany and a resurgence of Covid-19 cases in China.

European stocks followed Asian markets lower, with the pan-European Stoxx 600 down 0.4% and London’s FTSE 100 0.6% weaker, with the latter clobbered by data showing Britain’s economy shrank in November for the first time since the initial Covid-19 lockdown in 2020 as social-distancing rules tightened.

The MSCI world equity index, which tracks shares in 49 countries, was 0.2% lower. S&P 500 e-mini futures shed 0.3% to 3,779.

Earlier on Friday, an Asian regional share index had edged near record highs after US president-elect Joe Biden proposed a $1.9-trillion stimulus plan to jump-start the world’s largest economy and accelerate its response to the coronavirus.

In prime-time remarks, Biden outlined a proposal that includes $415bn aimed at the Covid-19 response, some $1-trillion in direct relief to households, and roughly $440bn for small businesses and communities hard hit by the pandemic. But that initial boost later faded as risk appetite waned, lifting bond prices and the dollar, and hitting equities.

“People are saying it’s a big number but markets are almost acting like it’s a disappointment,” said James Athey, investment director at Aberdeen Standard Investments.

“I think maybe the market was pricing an additional $2,000 cheque going to the US population, but what’s being proposed is a top-up of $1,400 to take the total to $2,000 because $600 has already been agreed.”

Investors also digested the prospect of rising taxes to pay for the plan. “The concern is what it’s going to mean from a tax stand point,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.

“Spending is easy to do but the question is how are you going to pay for it? Markets often ignore politics but they don’t often ignore taxes.”

Recovery prospects

Biden’s comments came after US Federal Reserve chair Jerome Powell struck a dovish tone in comments at a virtual symposium with Princeton University.

Powell said the Fed is not raising interest rates any time soon and rejected suggestions it might start reducing its bond purchases in the near term.

Investor concerns over the prospects for a global economic recovery were raised after France strengthened its border controls and brought forward its night curfew by two hours to 6pm for at least two weeks to try to slow the spread of coronavirus infections, while German Chancellor Angela Merkel called for “very fast action” to counter the spread of variants of the coronavirus.

Chinese blue chips eased 0.2%, snapping a four-week winning streak, after on Friday the country reported the highest number of new Covid-19 cases in more than 10 months.

Sentiment was also soured by a further strain in China-US relations after the Trump administration imposed sanctions on officials and companies for alleged misdeeds in the South China Sea and an investment ban on nine more firms.

On Friday, the US earnings season will kick into full swing with results from JPMorgan, Citigroup and Wells Fargo. Investors will be looking to see if banks are starting to take down credit reserves, resume buybacks, and provide guidance that shows the economy is improving, said Thomas Hayes, chair of Great Hill Capital in New York.

In the currency market, the dollar rose. The dollar index was at 90.458 compared to a basket of currencies, up 0.2% on the day. It was on track for a weekly gain of about 0.4%, making this its strongest week since November.

Against the stronger dollar, the euro was down 0.3% at $1.2121.

US yields stepped back as risk appetite waned. Benchmark 10-year treasury notes yielded 1.1107%, down from a US close of 1.129% on Thursday, while the 30-year yield dipped to 1.8500% from 1.874%.

Oil prices, which had risen on a weak dollar and strong Chinese import data, dropped as Covid-19 concerns in China hit sentiment. Brent crude oil futures fell 1.2%, to $55.71 a barrel while US crude lost 0.9% to $53.11. 

Spot gold rose 0.2% to $1,850.16 per ounce.

Reuters