Equities sink on virus angst, Fed aftermath; gold, yen rise

09/18/2020 | 04:16pm

Global equity markets slid on Friday as investors sought direction after this week's U.S. Federal Reserve meeting and a jump in coronavirus cases in Europe rattled sentiment, while gold rose and safe-haven buying lifted the Japanese yen.

The dollar posted its fifth straight day of declines against the yen as Japan's monetary policy of yield curve control pushes up real interest rates.

U.S. technology-related stocks reversed early gains on Wall Street to extend their losses to a third day, while the S&P 500 and Nasdaq posted a third straight week of declines.

The big tech names that have fueled the U.S. rally from a pandemic-induced slump in March - Apple Inc, Microsoft Corp, Amazon.com Inc and Alphabet Inc - led equities lower.

Rising coronavirus cases and a dim economic outlook weighed on sentiment. The biggest threat to the euro zone economy is a resurgent pandemic, according to a Reuters poll of economists, who say growth and inflation are more likely to cause negative surprises in the coming year than positive ones.

European countries from Denmark to Greece announced new restrictions on Friday to curb surging coronavirus infections in some of their largest cities, while Britain was reported to be considering a new national lockdown.

"The COVID-19 infection rate in Europe has gotten pretty bad," said Tom Martin, senior portfolio manager at Globalt Investments in Atlanta. "The implications are that it's difficult to curtail the virus."

MSCI's benchmark for global equity markets fell 0.62% to 566.62, while in Europe, the broad FTSEurofirst 300 index closed down 0.62% at 1,429.67.

On Wall Street, the S&P 500 lost 37.55 points, or 1.12%, to 3,319.46 and the Nasdaq Composite dropped 117.00 points, or 1.07%, to 10,793.28. The Dow Jones Industrial Average fell 244.56 points, or 0.88%, to 27,657.42.

For the week, the S&P 500 fell 0.65%, the Dow slipped 0.03% and the Nasdaq declined 0.56%.

A big rotation into value stocks from growth and momentum has yet to materialize, said Yousef Abbasi, global market strategist at StoneX.

"There really isn't a value sector that's positioned to take the reins and lead," Abbasi said. "There's a lack of a catalyst to force people to look more seriously at value as leadership."

Investors ignored a report that showed U.S. consumer sentiment increased in early September, with Democrats more upbeat about the economy's outlook compared with Republicans ahead of the Nov. 3 presidential election.

A decision by Republican President Donald Trump's administration to ban WeChat and video-sharing app TikTok from U.S. app stores starting Sunday night raised concerns about a new front in continuing China-U.S. political tensions.

"The diplomatic tug of war is not being resolved," said Boris Schlossberg, managing director of FX strategy at BK Asset Management. "The tensions are heightening rather than easing. That's not something the market likes to see."

The Japanese yen strengthened 0.12% versus the greenback at 104.60 per dollar, after earlier gaining to 104.270 - its strongest level against the U.S. currency since July 31.

The dollar index rose 0.058%, with the euro unchanged at $1.1847.

U.S. Treasury yields edged higher but remained within recent trading ranges as government-bond investors took their cue from equity markets.

The benchmark 10-year U.S. Treasury note rose 1.3 basis points to 0.6953%.

Euro zone government bond yields traded little changed on expectations of more central bank policy easing.

Safe-haven German 10-year bond yields were up 0.1 basis points at -0.482%.

Investors piled into emerging markets assets, giving developing country debt funds their 11th straight week of inflows.

Copper touched its highest in more than two years as speculators extended their buying spree on the economic recovery in top metals consumer China while the dollar weakened.

China has been a major beneficiary of investment flows as the country is the most attractive market for asset managers with cash to allocate, according to fund flow tracker EPFR.

Stocks overnight in China made their strongest gains in three weeks, with the CSI300 index adding 2.2%, led by financial companies.

Gold prices gained, buoyed by a weaker dollar and concerns over the economic recovery.

Spot gold prices rose 0.39% to $1,950.08 an ounce, and U.S. gold futures settled up 0.6% at $1,962.10.

Oil prices settled little changed after a Libyan commander said a blockade of Libya's oil exports would be lifted for a month, while the decline in U.S. equities weighed on futures.

Still, both the U.S. and Brent crude benchmarks were set for weekly gains after Saudi Arabia pressed allies to stick to output quotas, Hurricane Sally cut U.S. production, and banks including Goldman Sachs predicted a supply deficit.

Brent crude futures slid 15 cents to settle at $43.15 a barrel. U.S. crude futures rose 14 cents to settle at $41.11 a barrel.

By Herbert Lash

© Thomson Reuters 2020
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