World stocks stall ahead of EU meeting on Covid-19 stimulus

London — Caution gripped markets on Thursday, with stocks falling before a key euro group meeting to discuss joint stimulus measures, offsetting optimism from a fresh round of US coronavirus aid and a recovery in oil prices.

The US Congress looked on course to approve nearly $500bn more in aid to help small businesses, while EU leaders make another attempt at agreeing on a joint recovery fund.

European stocks slipped 0.4% and US stock futures were down 0.3% after a strong showing on Wednesday.

“The EU Council meeting will be closely watched to see how quickly EU policymakers will move towards area-wide fiscal risk-sharing,” said George Cole, an economist at Goldman Sachs. “We expect the discussions to fall short of a full commitment to mutualise risks from the Covid-19 shock.”

Adding further pressure were business activity surveys in the eurozone that showed economies suffered huge blows from the coronavirus pandemic and measures to contain it.

IHS Markit’s flash composite purchasing managers’ index (PMI) for the bloc, seen as a good gauge of economic health, sank to 13.5, by far its lowest reading since the survey began in mid-1998.

Stocks and other risky assets barely acknowledged those numbers, though, since they were mostly backward-looking data. It was the EU meeting and the outcome that weighed on markets.

“Frankly, if we saw a full agreement today that would be a surprise, but progress and something that Italy can sign up to will be the key,” Jim Reid, a strategist with Deutsche Bank, said.

Italian two-year government bond yields fell 5.5 basis points (bps) to 1%, after earlier slipping as much as 12bps to 0.94%. Ten-year yields were down by the same amount at 2.05%.

The silver lining in macro-economic news overnight was the European Central Bank’s (ECB) decision to let banks post collateral that was downgraded to junk during the Covid-19 pandemic to prevent a credit squeeze in the eurozone. That pushed down the cost of insuring exposure to a basket of sub-investment grade European companies.

Asia was still riding the recovery in crude oil prices. MSCI’s broadest index of Asia Pacific shares excluding Japan rebounded from two-week lows to be up 0.4% following an overnight lead from Wall Street.

Brent oil extended gains on Thursday to rise 5% to $21.46 a barrel on the prospects for further production cuts to reduce the glut in the oil market. US crude gained 6% to $14.61.

In currencies, the dollar slipped against the currencies of oil-producing states, giving up earlier gains as the recovery in crude prices helped to soothe markets. The dollar fell 1% against the Russian rouble and 0.6% against the Mexican peso, retreating from a two-week high earlier in the session.

Reuters