Global shares slip off record highs as gloom over recovery kicks in

London/Sydney — Global shares slipped off record highs on Friday as gloomy data reminded investors of the struggles facing the economic recovery, curbing a rally fueled by hopes of US stimulus by newly inaugurated US President Joe Biden.

Sentiment in Europe was already more cautious after Thursday’s European Central Bank (ECB) meeting, in which the bank’s message was perceived as more hawkish than expected. The yield on Italian 10-year benchmark bonds touched its highest since early November on reports that Prime Minister Giuseppe Conte may be tempted by the prospect of a snap election.

The Euro Stoxx 600 was 0.8% weaker as investors digested weaker flash purchasing managers’ index readings for January. Lockdown restrictions to contain the coronavirus pandemic hit the bloc’s dominant service industry.

The FTSE 100 index slipped 0.5% as data showed British retailers struggled to recover in December from a partial coronavirus lockdown the previous month.

The MSCI world equity index, which tracks shares in almost 50 countries, was 0.2% softer following three straight sessions of gains. E-Mini futures for the S&P 500 stumbled 0.53%. MSCI’s broadest index of Asia Pacific stocks excluding Japan was 0.8% lower.

The risk-off mood followed a period of relief after the transition of power in the US, culminating in Biden’s inauguration on Wednesday and strong expectations that US stimulus will provide continued support for global assets.

“The fact that there would be US stimulus was well known and the size of the package and the very high-level details of what they’re aiming for with the package was well known some time ago,” said James Athey, investment director at Aberdeen Standard Investments. 

“The realities of what is likely to be achievable relatively quickly are not supportive of just blindly buying cyclical assets. There’s a lot more nuance and a lot more politics to go on before we get there.”

Republicans in the US Congress have indicated they are willing to work with Biden on his administration’s top priority, a $1.9-trillion US fiscal stimulus plan, though some are opposed to the price tag.

Democrats took control of the US Senate on Wednesday, though they will still need Republican support to pass the programme.

China’s composite stock index slid 0.4%, while the blue-chip CSI 300 index edged up 0.1%.

Travel plans were in limbo for tens of millions of people in China’s northern cities. They have been under various lockdowns amid worries that undetected coronavirus infections could spread quickly during the Lunar New Year holiday, which is just weeks away. China reported 103 Covid-19 cases on Friday.

In currency markets, the dollar paused after three straight days of losses, though it was still on track for its biggest weekly loss since mid-December. The currency was flat on the day at 90.118.

The yen was down around 0.1% against the dollar, at ¥103.63. Data from Japan overnight showed that factory activity slipped into contraction in January and the services sector was more pessimistic as emergency measures to combat a Covid-19 resurgence hit sentiment.

The dollar’s recent slide has been led by investors ploughing money into higher-yielding currencies on optimism about a rapid economic recovery led by the US stimulus.

In commodities, oil prices were weighed down by worries that new pandemic restrictions in China will curb fuel demand in the world’s biggest oil importer. Brent crude futures fell 1.2% to $55.41 a barrel. US crude was 1.4% lower at $52.39 per barrel.

Spot gold was down 0.4% at 1,862.3/oz.

Reuters