Stocks steady as infection fears curb vaccine optimism

MILAN/SINGAPORE: World shares steadied on Tuesday and currencies moved in tight ranges as rising COVID-19 cases and social restrictions ahead of the busy Christmas shopping season balanced optimism over a vaccine-driven economic recovery next year.

MSCI world equity index, which tracks shares in 49 countries, was flat by 0901 GMT after losses in Asia overnight, although European shares managed to post slight gains after a weaker open.

The number of coronavirus deaths in the United States crossed 300,000 on Monday as the hardest hit nation started its first vaccine inoculations, while tighter COVID-19 restrictions were imposed on London.

Other countries from France to Italy and the Netherlands were also set to impose new restrictions during the holiday season to rein the contagion after Germany imposed a stricter lockdown on Sunday.

"Coronavirus case growth in Europe is accelerating... In any case, much of Europe will have to weather tighter restrictions until at least early to mid-January. Q4 will be lost quarter for growth, but that should surprise no one," said AFS analyst Arne Petimezas.

Most Asian markets retreated, with MSCI's index of Asia-Pacific shares outside Japan falling 0.4pc to its lowest level in more than a week after hitting a string of record highs in recent weeks.

China's blue-chips, however, ended 0.2pc higher, helped by upbeat factory data which expanded for an eighth month in a row as an economic recovery gathered pace.

Positive news on vaccines, along with a market-friendly outcome of the U.S. presidential election, has powered gains over the last few weeks, lifting world shares to record highs.

On Tuesday the MSCI world equity index was just 1.1pc below its all time peak and is up 11pc this year.

EMERGENCY USE

Last week, the United States authorised the emergency use of its first COVID-19 vaccine, developed by Pfizer and BioNTech.

The vaccine has already been authorised in a handful of countries including Britain and Canada.

"We now know we are building a bridge to somewhere, providing clarity for policymakers, households and companies about getting to a post COVID stage," strategists at BlackRock Investment Institute said in a report.

"Yet disappointing jobs data in recent weeks pointed to near term risks as the virus surges around the U.S., potentially slowing the restart," they said.

On Monday, the S&P 500 closed down 0.4pc, the Nasdaq Composite gained 0.5pc and the Dow Jones Industrial Average hit a record high but fell back 0.6pc for the day. E-Mini futures for the S&P 500 rose 0.6pc.

In foreign exchange markets, the pound fell 0.3pc against the dollar at $1.3289 after London imposed tighter COVID-19 restrictions.

The pound rose 0.8pc on Monday as the UK and Europe agreed to continue Brexit talks after it reached a 2 1/2-year high of $1.3540 this month.

The dollar traded near 2-1/2-year lows against major peers as demand for the safest assets flagged.

Euro zone bond yields dipped on the concerns about rising COVID-19 cases in major economies.

Germany's benchmark 10-year bond yield dipped to -0.627pc , nearing recent one-month lows of around -0.64pc, while Italy's 10-year yield fells to new record low of 0.497pc.

U.S. Treasury yields were stable at 0.8964pc ahead of the Federal Reserve's two-day policy meeting on Tuesday.

Market expectations are growing that the Fed will further ease monetary policy by expanding its bond buying programme, as U.S. lawmakers struggle to agree on a fiscal stimulus package.

The Bank of England and the Bank of Japan also close out their 2020 meetings this week.

Gold prices advanced 1pc to $1,835.9 per ounce.

Brent crude oil prices dipped 0.3pc to $50.13 a barrel as tighter lockdowns in Europe and an OPEC forecast for a slower recovery in demand next year outweighed relief from the roll-out of coronavirus vaccines.

London copper prices rose 0.3pc, underpinned by the strong manufacturing output data from China.