World shares at record highs as Europe gains and dollar fights back

London/Sydney — Europe kept record high world share markets marching forward on Thursday, while the dollar was in fightback mode and government bonds steadied after European Central Bank (ECB) efforts to tame the euro.

The promise of ongoing global fiscal and monetary stimulus remained far too powerful to allow worries about second coronavirus waves or deteriorating US-China and EU-Russia relations to rein in the bulls.

The pan-European Stoxx 600 index rose more than 1% in early trade, tracking Wall Street’s latest peaks and gains in parts of Asia after data there had shown China’s service sector grew for a fourth straight month in August.

It kept MSCI’s broadest index of world shares, which tracks nearly 50 countries, at a record high. The index has now surged nearly 60% since collapsing in February and March when Covid-19 was beginning to spread globally.

Wall Street futures were broadly flat.

“The US equity market just seems to go politely ploughing on and the US dollar is still correcting,” said Société Générale strategist Kit Juckes.

“I think you would have to get euro-dollar down through 1.17 before the US equity market — which is probably the most overstretched of all time — might start paying attention and think something was correcting more seriously.”

The dollar’s ongoing bounce on Thursday put the greenback about 1.3% above the 28-month low it had hit against major world currencies on Tuesday. It was also on track for its first unbroken three-day gain since May.

The euro, meanwhile, slipped 0.4% to $1.1803, helped on the way by a Financial Times report that several ECB members were concerned that the euro’s rise, which saw it touch $1.20 this week, could hamper the region’s economy.

That followed remarks on Tuesday from ECB’s chief economist Philip Lane, who said the exchange rate “does matter” for monetary policy.

Westpac currency strategist Sean Callow said the FT report was “stoking some interest in next week’s ECB meeting at the very least,” while MUFG’s Lee Hardman reckoned the bank would “rely more on jawboning” for now rather than dive back into actual action.

Nevertheless, short-dated German bond yields — which move inverse to the asset’s price — dropped to their lowest level in nearly a month before clawing up again as a survey showed the eurozone’s rebound faltered in August.

Growth in the bloc’s dominant service industry almost ground to a halt, suggesting the long road to post-coronavirus recovery will be bumpy.

It “sends a disappointing signal that the rebound has lost almost all momentum”, said Chris Williamson, chief business economist at IHS Markit which compiles the purchasing managers’ index data.

Rouble rumbled

There was plenty in Asia and elsewhere for traders to chew over, too.

Reports that China was planning sweeping policy changes to its semiconductor industry to fight US restrictions added fuel to concerns about deteriorating relations between the world’s two biggest economies.

China’s blue-chip index closed 0.5% lower, while Hong Kong’s Hang Seng fell 0.7% to take some of the shine off gains of 0.9% and 1.3% in Tokyo and Seoul.

The China chip talk came after the US said on Wednesday it would now require senior Chinese diplomats to get state department approval before visiting US university campuses or holding cultural events with more than 50 people outside mission grounds.

Shares of Chinese gaming and social media powerhouse Tencent, in which Naspers has a 31.2% stake, had also fallen more than 2% after India banned 118 mobile apps, including the firm’s popular PUBG game.

Russia’s rouble continued to struggle after having tumbled 2.6% on Wednesday after Germany said Kremlin critic Alexei Navalny had been poisoned with a Soviet-style Novichok nerve agent, the same substance Britain said was used against a Russian double agent and his daughter in an attack in England in 2018.

German Chancellor Angela Merkel said Berlin now expects Moscow to explain itself and that Germany would consult its Nato allies about how to respond, raising the prospect of new Western sanctions on Russia.

In commodities, US crude dipped 0.2% to $41.42 a barrel. Brent crude fell to $44.27 a barrel. Gold was slightly lower, with spot prices at $1933.98 an ounce.

Reuters