World shares steady as vaccine euphoria is tempered by more virus lockdowns

Milan/Singapore — World shares steadied on Tuesday and currencies moved in tight ranges as rising Covid-19 cases and social restrictions ahead of the busy Christmas shopping season balanced optimism over a vaccine-driven economic recovery in 2021.

MSCI world equity index, which tracks shares in 49 countries, was flat by 9.01am GMT after losses in Asia overnight, though European shares managed to post slight gains after a weaker open.

The number of coronavirus deaths in the US crossed 300,000 on Monday as the hardest hit nation started its first vaccine inoculations, while tighter Covid-19 restrictions were imposed on London.

Other countries, from France to Italy and the Netherlands, were also set to impose new restrictions during the holiday season to rein in the contagion after Germany imposed a stricter lockdown on Sunday.

“Coronavirus case growth in Europe is accelerating … In any case, much of Europe will have to weather tighter restrictions until at least early to mid-January. Quarter four [2020] will be a lost quarter for growth, but that should surprise no-one,” said AFS analyst Arne Petimezas.

Most Asian markets retreated, with MSCI’s index of Asia-Pacific shares excluding Japan falling 0.4% to its lowest level in more than a week after hitting a string of record highs in recent weeks.

China’s blue-chips, however, ended 0.2% higher, helped by upbeat factory data that expanded for an eighth straight month as an economic recovery gathered pace.

Positive news on vaccines, along with a market-friendly outcome of the US presidential election, has powered gains over the past few weeks, lifting world shares to record highs. On Tuesday the MSCI world equity index was just 1.1% below its all-time peak and is up 11% this year.

Emergency use

Last week, the US authorised the emergency use of its first Covid-19 vaccine, developed by Pfizer and BioNTech. The vaccine has already been authorised in a handful of countries, including Britain and Canada.

“We now know we are building a bridge to somewhere, providing clarity for policymakers, households and companies about getting to a post-coronavirus stage,” strategists at BlackRock Investment Institute said in a report. “Yet disappointing jobs data in recent weeks pointed to near term risks as the virus surges around the US, potentially slowing the restart.” 

On Monday, the S&P 500 closed down 0.4%, the Nasdaq Composite gained 0.5% and the Dow Jones industrial average hit a record high but fell back 0.6% for the day. E-Mini futures for the S&P 500 rose 0.6%.

In foreign exchange markets, the pound fell 0.3% against the dollar at $1.3289 after London imposed tighter Covid-19 restrictions. The pound rose 0.8% on Monday as the UK and Europe agreed to continue Brexit talks after it reached a 2.5-year high of $1.3540 this month.

The dollar traded near 2.5-year lows against major peers as demand for the safest assets flagged.

Eurozone bond yields dipped on concerns about rising Covid-19 cases in major economies. Germany’s benchmark 10-year bond yield dipped to -0.627%, nearing recent one-month lows of about -0.64%, while Italy’s 10-year yield fells to new record low of 0.497%.

US treasury yields were stable at 0.8964% ahead of the Federal Reserve’s two-day policy meeting on Tuesday. Market expectations are growing that the Fed will further ease monetary policy by expanding its bond-buying programme, as US lawmakers struggle to agree on a fiscal stimulus package.

The Bank of England and the Bank of Japan also close out their 2020 meetings this week.

Gold prices advanced 1% to $1,835.9 an ounce.

Brent crude oil prices dipped 0.3% to $50.13 a barrel as tighter lockdowns in Europe and an oil cartel Opec forecast for a slower recovery in demand in 2021 outweighed relief from the rollout of coronavirus vaccines.

London copper prices rose 0.3%, underpinned by the strong manufacturing output data from China.

Reuters