World shares sink as data points to tepid economic revival

LONDON (Reuters) – Global shares dipped on Friday as euro zone data offered little cheer for investors already worried about lacklustre Chinese economic numbers and a delay in U.S. fiscal stimulus.

European shares were also dragged lower by a hit to travel stocks after Britain added more European countries to its quarantine list, including neighbouring France.

The pan-European STOXX 600 was down 1.2%, although still on track to gain for a second straight week.

MSCI’s world index was 0.3% lower, drifting further from all-time highs touched in February. The index has still rallied close to 50% from March’s trough in the wake of the COVID-19 pandemic.

“The rally was over-extended and most of the good news is already priced in,” said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners.

“There are no more positive than expected earnings, and we’re back to the macro background and the checking of the data regularly to see if the recovery is sustainable. Markets are pricing a lot of good news and we will be entering a period of volatility with the U.S. elections coming up.”

The euro zone reported the biggest drop it had ever recorded in employment in the second quarter. Data also confirmed a record drop in gross domestic product last quarter and a widening in the euro zone’s trade surplus with the rest of the world.

Investors focus next switches to U.S. retail sales figures at 1230 GMT.

Data showing a slower-than-expected rise in Chinese industrial production and a surprise fall in retail sales put Asian shares on the defensive.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2%, although shares in Japan rose 0.2%.

Chinese shares rose 1.5% in choppy trade, with the data suggesting domestic demand is still struggling after the coronavirus outbreak.

E-mini futures for the S&P 500 were 0.1% negative.

The benchmark German 10-year Bund yield fell to -0.42% after rising for three sessions and having touched a six-week peak in early trade.

Yields on U.S. Treasuries remained elevated after an auction of 30-year bonds on Thursday met weak demand.

Further equity gains are likely to be limited as investors await progress in negotiations over U.S. economic stimulus, which is necessary to prevent a nascent recovery in the world’s largest economy from sliding into reverse.

Some traders stuck to the sidelines before a meeting between U.S. and Chinese officials about their Phase 1 trade deal on Saturday.

Spot gold fell 0.3% to $1,948.12 as high U.S. Treasury yields prompted investors to reassess their positions. Bullion has declined more than 4% so far this week, its biggest weekly percentage fall since early March.

Data on Thursday showed the number of Americans seeking unemployment benefits dropped below one million for the first time since the start of the pandemic, but was not enough to change economists’ views that the jobs market is faltering.

U.S. Treasury yields also supported the U.S. dollar, which held steady and was close to snapping a seven-week losing streak against the risk-sensitive Aussie. The yen was set for its worst week against the greenback in two months and down about 0.9% at 106.74 from last Friday’s close.

The dollar was headed for an eighth consecutive week of losses, its longest weekly losing streak since June 2010, according to a Refinitiv index.

Oil recovered from early losses, with Brent crude flat at $44.96 and U.S. West Texas Intermediate also largely unchanged at $42.24. [O/R]

Graphic: World FX rates in 2020 here

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