- Global equities rose, led by gains in commodity, retail and industrial stocks, which tend to benefit from an improving economic outlook, while technology shares lagged.
- Cases of COVID-19 keep surging in the US and Europe, where Italy imposed new movement restrictions in the worst-hit areas.
- Political uncertainty in the United States continued to simmer in the background, after the secretary of state, Mike Pompeo, told reporters on Tuesday to expect a “smooth transition” to a second Trump term.
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Global equities edged higher on Wednesday, as investor cash continued to flow into previously unloved “real economy” stocks, but political uncertainty in Washington and record COVID-19 infection rates across the US and Europe eroded some appetite for risk.
Futures on the S&P 500 and the Dow Jones rose between 0.3 and 0.4%, while those on the Nasdaq 100 gained 0.3%. This suggested the technology sector could recoup some of Tuesday’s losses later in the day.
Tech stocks came under fire on Wall Street on Tuesday, with the likes of Microsoft, Apple, Facebook and Amazon losing around 2-3%. Video-conferencing company Zoom lost more than 9%, as investors cashed in on some of the biggest beneficiaries of the work-from-home economy, following drugmaker Pfizer’s announcement of a successful trial vaccine on Monday.
The backlash continued overnight, stripping almost 10% off Asian tech mega-caps such as Alibaba, and 8% off Tencent. European technology stocks were among the worst performers on Wednesday.
The Stoxx 600 was last up 0.5%, led by gains in oil and gas, retail and industrial stocks – ones that are highly exposed to the health of the global economy – while travel and technology stocks acted as a drag on the broader index.
Optimism over the prompt roll-out of Pfizer’s vaccine overshadowed the still-dire rise in infection and hospitalization rates. The US reported a record rise of 120,000 cases on Tuesday, while total cases topped 10 million. Italy on Wednesday said it would impose tougher lockdowns on the worst-hit parts of the country, as infections there continue to surge.
CMC Markets chief strategist, Michael Hewson, said: “This week’s news on a vaccine, while welcome doesn’t change the fact that France, Germany and the UK are still in the middle of partial economic lockdowns, while infection rates in the US have continued to rise. However, for now, markets appear content to ignore this and are now focusing on the potential green pastures of a post pandemic world, with a workable vaccine.”
Hewson added: “Whether this is premature, only time will tell but for now investors appear content to ride this particular wave until it breaks.”
On the political front, the US secretary of state, Mike Pompeo, on Tuesday refused to acknowledge Joe Biden’s victory in last week’s election and told reporters to expect a “smooth transition” to a second Trump term.
The dollar edged lower against emerging market currencies, such as the Turkish lira, the Russian ruble and the Korean won, losing between 0.3-0.4%. It posted modest gains versus major currencies, however, leaving the dollar index up 0.2% on the day.
The US bond markets were closed for the Veterans’ Day holiday. Stock markets will trade as usual.
Crude oil continued this week’s recovery, rising for a third day. The energy complex has been a major gainer this week. Oil has rallied by 8% since Monday, while diesel futures – the most reliant on economic recovery – have risen by almost 12% in that time.
“We reiterate our near-term cautious outlook, as mobility restrictions in Europe and higher Libyan oil production will reduce the market deficit in 4Q20,” UBS commodities analyst Giovanni Staunovo said.
“Still, we maintain our bullish outlook for 2021, targeting Brent to hit $60 a barrel at the end of 2021. So we continue to recommend that investors with a high risk tolerance sell Brent’s downside price risks,” he added.
With the dollar holding mostly steady against the major currencies, gold traded almost flat on the day, down 0.1% at $1,875.90 an ounce. Gold posted its biggest one-day loss in over seven years on Monday, losing 5% after Pfizer unveiled the results of its trial vaccine.
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