Stock markets weaken as US dollar continues to rebound

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Global stocks slipped on Monday after their best week since November, as the US dollar gained ground amid the worsening pandemic.

Wall Street’s benchmark S&P 500 fell 0.8% at the opening of the bell in New York, while the high-tech Nasdaq Composite slipped 1.3%.

European indices broke last week’s winning streak to post losses across the board as the worsening health crisis caught the attention of investors. The region’s benchmark Stoxx 600 was down 0.8 percent by mid-afternoon, London’s FTSE 100 lost 1 percent and Germany’s Dax lost 1.2 percent. hundred.

“The first quarter of the year will be worse than expected due to [renewed European] lockdowns everywhere, ”said Jean-François Robin, head of global market research at Natixis. “We expected a little [of a] better start the year. ”

Monday’s losses came after a strong start to the year for global equities, as the prospect of another fiscal stimulus in the United States added to optimism over Covid-19 vaccines and hopes for a rebound in the global economy.

“In the short term, there is a very real and present danger that the United States could double the decline in the first quarter,” said Richard Saperstein, chief investment officer at Treasury Partners. “We saw the first signs of this with the jobs report last week.”

He said the prospect of Covid-19 vaccines and further stimulus measures had fueled market optimism, but that “if we start to see further surges in Covid-related hospitalizations and deaths, I’m concerned that the ‘market enthusiasm does not turn in the short term’.

Salman Baig, multi-asset investment manager at Unigestion, pointed out that equity valuations remain high, with great optimism already embedded. “The profit season will start in the next few weeks; depending on the tone set by some of these companies, it could be difficult, given the valuation situation, ”he said.

The dollar, as measured against a basket of peers, rose 0.3% in the afternoon in London, bringing it up 0.6% for the year. The ball has been lifted since US Treasury yields rose last week, on bets that Democratic control of Congress would mean more stimulus to the US economy, fueling inflation.

The dollar lost about 7% last year after interest rate cuts by the Federal Reserve reduced the attractiveness of dollar assets and encouraged investors to take riskier bets, like the Chinese renminbi.

But some analysts expect the dollar rally to be short-lived as inflation expectations rise while interest rates are expected to stay low for the foreseeable future.

Lee Hardman, currency analyst at MUFG, said the rise in US yields “temporarily triggered a jolt in high short positions in the US dollar,” which had risen significantly over the past month.

The euro, which has rebounded sharply in recent months, slipped 0.6% against the dollar on Monday to $ 1.2147, while the British pound fell 0.7% to $ 1.3472.

In Asia, China’s CSI 300 index slipped 1% as banks and stock exchanges began to adhere to the president’s decree banning investments in companies with suspected ties to the Chinese military. However, Japan’s Topix jumped 1.6% to a new high.

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