Stock markets mixed on worry over passing of US stimulus package

London/Singapore — US treasury yields fell to three-week lows while stock markets were mixed on Tuesday as concerns about potential roadblocks to new US President Joe Biden’s planned $1.9-trillion stimulus weighed on investor sentiment.

Mounting coronavirus cases and caution ahead of the US Federal Reserve’s policy meeting this week also dulled appetites for risk, lending support to the dollar against a basket of currencies. Oil prices edged down.

The yield on Germany’s 10-year government bond, seen as Europe’s safest asset, dropped to a two-week low amid a fresh bout of political turmoil in Italy. But European stock markets edged higher after two sessions of declines, with the pan-European Stoxx 600 up 0.8%, after Swiss wealth manager UBS posted a surge in quarterly net profit.

“The earnings season up to now has been very good, so it comes back to the market being overbought and having a strong rally since January 1, with a lot of positive news priced in,” said François Savary, chief investment officer at Swiss wealth manager Prime Partners, referring to recent losses. “There is room for some consolidation.”

E-Mini futures for the S&P 500 shed 0.1%. On Monday, the Nasdaq index scaled a new peak but the Dow Jones industrial average index slipped.

South Korea and Hong Kong topped losers in Asia overnight, falling more than 2% apiece. The sell-off also saw Japanese stocks slip 1% and Chinese blue-chips fall 2%, their biggest one-day loss since September 9. All had touched milestone highs earlier this month.

MSCI’s all country world index, which tracks stocks across 49 countries, was flat, while MSCI’s emerging-market stock index was 1.6% lower.

Simmering tensions in the Taiwan Strait and South China Sea added to the caution in Chinese markets, where a jump in small-cap short bets has also caught regulators’ attention.

After a “buy everything” rally over several months supported by money-printing pandemic stimulus packages, near-zero interest rates and the start of Covid-19 vaccination programmes, some investors are worried markets may be near “bubble” territory.

They point to rocketing prices of assets, such as bitcoin, or, on Monday, the soaring stock of short-squeezed video game retailer GameStop.

US lawmakers agreed that getting Covid-19 vaccines to Americans should be a priority, even as they locked horns over the size of a pandemic relief package. Democrat majority leader Chuck Schumer nevertheless warned the relief package may be four to six weeks away.

Disagreements have meant months of indecision in the US, where new Covid-19 cases are more than 175,000 a day and millions of people are out of work.

“We suspect earnings may not be able to catch up with what people expect this year,” said Jacob Doo, chief investment officer at Envysion Wealth Management, citing the lockdowns in Europe and the slow roll out of vaccines in the US.

“Within the tech space, we are cautious on Faangs now, simply because there could be anti-trust laws that Biden would implement,” he said, using the acronym for major US tech companies including Facebook and Amazon.

Investors are also looking ahead to the Federal Reserve’s federal open market committee (FOMC) meeting on Tuesday and Wednesday. “We expect the January FOMC to repeat and reinforce the Fed’s existing dovishness, which is still significant given the recent taper discussions and other central banks’ considerations to adapt policy,” CitiFX strategist Ebrahim Rahbari said in a note.

Against a basket of its rivals, the dollar rose 0.2% to 90.65, its highest level since January 20, as volatility in stocks dulled appetite for riskier currencies. The euro, which fell on Monday after a survey showed German business morale slumping, slipped 0.2% to $1.2126.

The benchmark 10-year US treasury yield slipped a fraction to fresh three-week lows, last trading at 1.0414%. Germany’s 10-year bond yield fell a basis point to a two-week low of -0.561%, while Italian 10-year yields were up slightly on the day at 0.655%.

Italian Prime Minister Giuseppe Conte will resign on Tuesday, his office said, hoping president Sergio Mattarella will then give him a mandate to form a new government.

After rising nearly 1% on Monday, Brent crude fell 0.5% to $55.60 per barrel and US crude lost 0.5% to $52.51. 

Spot gold fell 0.2% to $1,852.30 per ounce.

Reuters