Global stocks retreat after rally on EU stimulus

Europe’s €750b recovery fund helps offset concerns about Hong Kong unrest

Reuters May 28, 2020

NEW YORK: The euro retreated from near two-month highs and equity markets wavered on Wednesday even as the European Union unveiled a €750 billion ($823 billion) recovery fund that helped offset concerns about unrest in Hong Kong over Beijing’s proposed security laws.

US Treasury yields also retreated from gains on the European Commission’s proposed stimulus plan to bolster economies ravaged by the coronavirus pandemic.

The commission’s plan also includes €1.1 trillion for the EU’s next long-term budget that would contribute to the recovery fund that is aimed especially at Italy and Spain.

News of the plan earlier underpinned a broad market rally in Europe but much of Wall Street slipped as hopes of a pickup in business activity hit the reality of an economy that is unlikely to see full recovery until late next year.

“Market participants may be assuming a little bit more positive news than is actually going to come down the pike,” said David Kelly, Chief Global Strategist at JPMorgan Asset Management.

“We will see a start of a recovery, but it shouldn’t be misinterpreted,” Kelly said. “We’re not going to get back to full employment or even an unemployment rate below 10% any time this year and maybe it will take most of next year.”

The MSCI’s gauge of stocks across the globe shed 0.19% while the pan-European Stoxx 600 index lost 0.31%.

On Wall Street, the Dow Jones Industrial Average rose 178.04 points, or 0.71%, to 25,173.15 on rising financial and industrial stocks.

But the broader S&P 500 lost 6.46 points, or 0.22%, to 2,985.31 and tech-heavy Nasdaq Composite dropped 155.04 points, or 1.66%, to 9,185.18.

Tech heavyweights, Microsoft Corp and Facebook Inc led the Nasdaq lower, while healthcare and technology stocks were among the S&P 500 sector indices in the red. Technology and healthcare have outperformed during the coronavirus-led market slump.

The euro has struggled since falling in March, when investors rushed for the safety of dollars. But analysts say the recovery fund proposals, if they can win over EU members sceptical of an earlier Franco-German plan, could push the euro higher.

The dollar index rose 0.213%, with the euro down 0.05% to $1.0974. The Japanese yen weakened 0.24% versus the greenback at 107.83 per dollar.

Oil prices fell after US President Donald Trump said he was working on a strong response to China’s proposed security law in Hong Kong.

Tense relations between the world’s two biggest economies could weigh on global businesses and oil demand, which already has been hit by the coronavirus pandemic.

US crude fell 5.85% to $32.34 per barrel and Brent crude was at $34.40, down 4.89% on the day. Concerns about the US-China standoff over Hong Kong kept a dampener on market hopes for economic recovery.

Riot police fired pepper pellets on protesters in Hong Kong’s main business district, rekindling concern about the unrest seen last year that hit the territory’s economy.

The MSCI’s ex-Japan Asia-Pacific index fell 0.4% as Hong Kong and mainland China shares extended declines. Hong Kong’s Hang Seng fell 1% and mainland shares were down 0.8%, amid fears the protests would worsen antagonism between the United States and China.

The Chinese yuan weakened to the lowest levels since early September in both onshore and offshore trade. The onshore renminbi slipped 0.3% to as low as 7.1595 per dollar while the offshore currency fell 0.4% to 7.1760 per dollar.

Spot gold dropped 0.6% an ounce.

Published in The Express Tribune, May 28th, 2020.

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