LONDON (Reuters) – The main world share index was on course on Thursday to end its longest winning streak in over a year, one that has lifted it more than 10%, as the post-U.S. election and coronavirus vaccine bull run paused.
Europe’s main bourses were down as much as 1.5% and with Asia ending flat and Wall Street expected to open 0.5%-0.8% lower later[.N], MSCI’s 49-country world index was facing its first red day of November.
The powerful ‘rotation’ trades triggered by Monday’s breakthrough vaccine news, that saw investors send airline stocks and the other big COVID-hit sectors soaring, had looked to have worn themselves out.
Big Tech had rebounded on Wednesday as investors switched back to stay-at-home winners like Amazon and Netflix while Europe saw a return to safe-haven government bonds after more talk of European Central Bank stimulus.
“What we don’t really agree with is that you need to rotate out of tech into value stocks,” said Willem Sels, chief market strategist at HSBC Private Bank, referring to stocks that do well in more normal circumstances when economies are open.
“We don’t think either that a recovery (helped by a vaccine) would lead to a sustained sell-off in U.S. Treasuries. The Fed has signalled it is on hold,” he added.
In the currency market, the euro ticked up to $1.18, in the middle of the $1.16-$1.20 range it’s been in since late July. Sterling was down 0.5% amid more Brexit uncertainty and as data showed the UK economy losing speed again.
Turkey’s lira took a breather after President Tayyip Erdogan’s promise to overhaul unconventional monetary policy and the replacement of his son-in-law as finance minister caused it to rise 10%. [EMRG/FRX]
The New Zealand dollar retreated after soaring for a second session to a 19-month high in Asia as investors there unwound bets on the introduction of negative interest rates.
The kiwi got an added boost after Reserve Bank of New Zealand Assistant Governor Christian Hawkesby said the economy required less stimulus than it did in August.
“I would suggest that after the vaccine related storm of activity at the start of the week, and after the U.S. election news, that the euro is trying to find its feet,” said Jane Foley, head of FX strategy at Rabobank.
“In the near-term it seems that $1.18 could be a pivot.”
Graphic: World stocks hit new highs –
Global oil benchmark Brent was battling to add to three consecutive days of gains at a steady $43.88 a barrel and near a two-month high. [O/R]
As well as traders tempering their COVID-19 vaccine enthusiasm, the International Energy Agency raised doubts on Thursday about a quick recovery in demand, amid surging infections in Europe and the United States.
Most of Europe’s main economies are already grappling with a wave of infections and new social restrictions. New York also ordered bars and restaurants to start closing early on Wednesday after U.S. cases hit records.
There was some reassuring news though as the number of Americans filing new unemployment benefit claims fell to a seven-month low, data showed, albeit the pace of decline has slowed.
Pascal Blanqué, Chief Investment Officer at Europe’s largest fund manager Amundi, said markets are now pricing in “a rosy scenario” where there is broad availability of a vaccine, abundant liquidity and interest rates stay low “forever”.
“The sequence will not be so linear,” he cautioned, but did say there would be “a great rotation” back into COVID-mauled cyclical and value stocks.
Until the timing of the availability of a vaccine becomes clearer, oil prices “downside could turn out to be limited, but serious upside potential is unlikely to develop in the immediate future,” said Tamas Varga, analyst at PVM Oil.
The Organization of the Petroleum Exporting Countries also revised its demand forecast on Wednesday, saying global oil demand will recover more slowly in 2021 than previously expected because of rising coronavirus cases.
Safe-haven gold edged up. Spot gold rose 0.4% to $1,872 per ounce, while U.S. gold futures were 0.3% higher.
“We still have some gold,” HSBC’s Sels said. “With Europe still in lockdown and some political risks remaining, you can’t put all your chips on one colour.”