An impasse in U.S. economic stimulus negotiations and mixed corporate earnings reports in Europe pushed global equities lower and sent investors into safe-haven assets like government bonds and gold, which hovered near record highs.
U.S. Senate Republicans on Monday announced a $1 trillion coronavirus aid package, which Senate Majority Leader Mitch McConnell touted as a “tailored and targeted” plan to reopen schools and businesses. But Democrats called it too limited compared with their $3 trillion proposal that passed the House of Representatives in May, while some Republicans called it too expensive.
Enhanced unemployment benefits of $600 a week expire on Friday, which would be a blow to the household incomes and spending power of many Americans.
Some 30 million Americans are out of work and states are tightening lockdown restrictions again, a trend that has renewed worries about an economic recovery and dragged on the U.S. dollar.
Alan Ruskin, head of G10 strategy at Deutsche Bank, noted that currencies had been tracking the relative performance of their economies, so high-ranked economic performance was associated with stronger currencies.
“One clear pattern is how economies linked most tightly to China -- including commodity producers as diverse as Australia, Chile and Brazil -- have tended to perform better than economies most directly linked to the U.S., notably its NAFTA trading partners,” Ruskin said, referring to Canada and Mexico, the countries that along with the U.S. are party to the trade deal that has replaced the North American Free Trade Agreement.
MSCI’s gauge of stocks across the globe shed 0.37% following modest declines in Asia and broad gains in Europe.
In Toronto, S&P/TSX composite index closed unofficially down 40 points, or 0.25%, at 16,121.32.
The energy sector dropped 3.6% as oil prices dropped, while the financial and industrial sectors were down 0.5% and 0.3%.
The materials sector, which includes precious and base metals miners and fertilizer companies, slid 0.4%.
MSCI’s gauge of stocks across the globe gained 0.08% following modest declines in Asia and broad gains in Europe.
Wall Street closed lower on Tuesday as investors fretted about weakening consumer confidence, disappointing financial results and a smaller than hoped for coronavirus aid plan from U.S. Senate Republicans.
Weighing down the Dow were industrial conglomerate 3M Co after it reported a second-quarter plunge in demand across its businesses and McDonald’s Corp after a surprisingly big drop in global same-store sales.
Data released in the morning showed U.S. consumer confidence ebbed in July as coronavirus infections flared up across the country.
As they waited on a stimulus package and for quarterly reports in one of the busiest weeks in earnings season, investors were also anticipating the U.S. Federal Reserve’s Wednesday wrap-up of its two day policy meeting.
“It’s probably not a bad place to take some profits and rebuild some liquidity because any of those three events could lead to volatility,” said Sameer Samana, Senior Global Market Strategist at Wells Fargo Investment Institute in St. Louis.
Samana said “its going to be very hard for the Fed to surprise on the positive side.”
Florida reported a record one-day rise in coronavirus deaths, and cases in Texas passed the 400,000 mark, stoking fears the United States was losing control of the outbreak.
But Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia called the consumer survey “unsettling” evidence that “individuals are increasingly concerned about the recent surge in coronavirus impacting their finances and their mobility.”
Feeding the fears, members of congress were sparring over a $1 trillion aid proposal from Senate Republicans announced on Monday, four days before millions of Americans lose unemployment benefits.
“There has be tremendous compromise from both parties to get to some agreement,” he said, noting a congressional recess scheduled for August adds deadline pressure.
“It’s particularly critical at this time since the market is really feeding off the largess that’s been expended by fiscal and monetary authorities,” he said.
Unofficially, the Dow Jones Industrial Average fell 205.21 points, or 0.77%, to 26,379.56, the S&P 500 lost 20.87 points, or 0.64%, to 3,218.54 and the Nasdaq Composite dropped 134.18 points, or 1.27%, to 10,402.09.
Materials and Energy were the biggest percentage decliners of the S&P’s 11 major sectors. Defensive real estate and utilities sectors were the biggest gainers.
The Fed was expected to reiterate its accommodative stance after its meeting on Wednesday afternoon. On Tuesday, it said it would extend several lending facilities through year end, a sign the pandemic’s economic impact has been longer than expected.
Another focus this week is results from Wall Street’s trillion-dollar market value companies - Apple Inc, Amazon.com Inc and Alphabet Inc - as well as Facebook Inc.
Of the S&P 500 companies that have reported earnings so far this quarter, about 80% surpassed significantly lowered forecasts for quarterly profit, according to Refinitiv IBES data, An average of 71% companies beat profit estimates over the past four quarters.
Pfizer Inc shares rose after it raised its full-year forecast on strong demand for cancer drugs and blood thinners. Late on Monday, the drugmaker announced a pivotal global study to evaluate a COVID-19 vaccine candidate.
The rest of the week will see 179 S&P 500 companies reporting second-quarter earnings, including Google parent Alphabet Inc, Amazon.com Inc and Apple Inc , which all report on Thursday.
Spot gold added 0.6% to $1,953.62 an ounce. U.S. gold futures fell 0.12% to $1,944.70 an ounce.
Goldman Sachs analysts, in a research note, cited emerging concerns about the “longevity of the U.S. dollar as a reserve currency.” “We have long maintained gold is the currency of last resort, particularly in an environment like the current one where governments are debasing their fiat currencies and pushing real interest rates to all-time lows,” the analysts wrote.
Gold is up over $125 in little more than a week as investors bet the Federal Reserve will reaffirm its super-accommodative policies at its two-day meeting ending on Wednesday, and perhaps signal a tolerance for higher inflation in the long run.
The dollar has been falling almost across the board for a month. It reached a two-year low against a basket of currencies at 93.416 overnight before recovering to 93.975.
The euro dropped back to $1.1715 after rising to its highest level in two years, at $1.1781. The dollar had touched its lowest mark against the Swiss franc since mid-2015. It also fell to a four-month low of 105.10 against the Japanese yen before squatting at 105.25.
Benchmark 10-year Treasury notes last rose 9/32 in price to yield 0.5806%, from 0.609% late on Monday.
Oil prices fell on concerns of declining demand on the economic uncertainty linked to the coronavirus.
Brent crude futures fell 19 cents, or 0.4%, to settle at $43.22 a barrel, while U.S. West Texas Intermediate (WTI) crude futures fell 56 cents, or 1.4%, to settle at $41.04 a barrel.
Brent is still on track for a fourth monthly rise, and U.S. crude is expected to gain for a third month.
Reuters
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