Investor caution over renewed coronavirus lockdowns snuffed out a five-day rally in most world equity markets on Tuesday and weighed on oil prices, though it was not enough to halt a hot streak in Chinese stocks.
The dollar edged higher as risk currencies such as the Australian dollar took a breather from recent gains and gold dipped as investors booked profits after bullion rallied to a near eight-year peak, trading around $1,780 an ounce.
US Treasury yields ticked lower as a rising Covid-19 caseload raised concerns about economic reopening plans. The greater Miami area in Florida became the latest US coronavirus hot spot to roll back its reopening. Cases surged nationwide by the tens of thousands and the US death toll topped 130,000.
Investors remain concerned about the US economic outlook, said Jim Barnes, director of fixed income for Bryn Mawr Trust in the Philadelphia suburb of Berwyn.
“Economic conditions still have a long way to go to get back to pre-crisis levels,” he said.
MSCI’s all-country world index, which tracks shares in 49 nations, fell 1.64 points, or 0.3pc, while Europe’s broad FTSEurofirst 300 index dropped 0.64pc.
On Wall Street, the Dow Jones Industrial Avaerage fell 165.47 points, or 0.63pc, to 26,121.56 and the S&P 500 lost 1.98 points, or 0.06pc, to 3,177.74. But the Nasdaq Composite added 52.18 points, or 0.5pc, to 10,485.83. The Nasdaq set a fresh intraday peak.
Lockdown measures were also reimposed in Melbourne, Australia, confining its nearly 5 million residents to all but essential travel for another six weeks.
“Just when many parts of the world looked to have got to grips with the coronavirus pandemic, many jurisdictions re-imposed lockdowns to contain a surge in new cases,” said Luca Paolini, chief strategist at Pictet Asset Management.
Corporate earnings are expected to fall by about 20pc this year following the deepest recession in more than a century. Pictet expects a 30pc to 40pc slump.
“But that does not mean equity and corporate bond markets are due a sharp fall,” Paolini said, predicting the US Federal Reserve will inject a further $1.3 trillion of stimulus this year and the European Central Bank will add another 1.1tr euros.
The euro was last down 0.20pc at $1.1285.
The eurozone economy will drop into a deeper recession this year than previously expected and take longer to rebound, the European Commission forecast. Expectations are for a record 8.7pc slump and 6.1pc recovery in 2021. The commission had forecast in May a 7.7pc downturn and a 6.3pc rebound in 2021.
The dollar index, which tracks the greenback versus a basket of six currencies, rose 0.22pc to 96.942. The yen was up 0.20pc at $107.5700.
Analysts said signals from the Chinese government through a state-sponsored journal on “fostering a healthy bull market”, published on Monday, had helped the buying binge in Chinese shares.
Copper prices soared to their highest in more than five months due to strong demand prospects in top consumer China and worries about supplies from Chile, the world’s largest producer of the red metal.
Shanghai’s blue-chip index was sputtering by the close after adding to its 15pc gains over the past week.