Global Stocks Drift as Optimism Fades

Global stocks wavered Tuesday as investors’ optimism waned with the resurgence of coronavirus infections in some countries and signs that the economic recovery may be complicated. Futures tied to the Dow Jones Industrial Average edged up 0.2% after the blue-chips gauge dropped 0.4% on Monday. That suggests the rally of recent weeks, driven by technology companies and a fear of missing out on the economic recovery, maybe petering out. The pan-continental Stoxx Europe 600 ticked up 0.4%. Investors are assessing a variety of risks, including new infections in places like South Korea, Russia, and India as lockdown measures are eased. Renewed worries that economic recovery may be slower than people had anticipated, and more complicated in Europe because of rising tensions between European Union officials and Germany, are also weighing on sentiment, according to Steen Jakobsen, a chief investment officer of Saxo Bank. Adding to that, there’s concern that the Federal Reserve may adopt negative interest rates, and central banks around the world will need to support markets and economies for a prolonged period, he said. “There’s a sentiment change over the last 24 hours to 48 hours, from where the fear of missing out was supporting markets,” Mr. Jakobsen said. “There’s a huge number of tail risks.” Many policymakers and corporate executives were, until recently, hoping for a V-shaped economic recovery. Now, however, they expect a “swoosh” recovery or a large drop followed by a painfully slow recovery. Many Western economies, including the U.S. and Europe, won’t be back to 2019 levels of output until at least late next year, they predict. The latest economic data from China also suggests that the world’s second-largest economy won’t see a quick rebound. The producer-price index, a gauge of factory-gate prices, fell deeper into deflation in April as the pandemic crimped demand at home and abroad. The Shanghai Composite Index edged down 0.1% by the close of trading. Investors looking to assess the impact of the pandemic on the U.S. economy will be watching for fresh data on consumer prices at 8:30 a.m. ET. Inflation is likely to have softened in April, reflecting the sharp fall in energy prices in recent months and weakened demand for goods and services amid the surge in unemployment. The Federal Reserve Bank of New York said Monday evening that it will begin buying corporate-bond exchange-traded funds on Tuesday. That’s a historic milestone for the Fed, which hasn’t bought ETFs previously and expands the central bank’s efforts to support the economy and financial system during the crisis. The yield on the benchmark 10-year U.S. Treasury fell to 0.718%, after having climbed to 0.724% Monday. Even as state governors from New York to California took steps toward reopening businesses and limit the economic wreckage mounted by the lockdowns, the U.S. death toll surpassed 80,000 Monday. The pandemic has also reached the top echelons of government: the White House on Monday directed officials to wear masks at all times inside the building except when sitting at their own desks, administration officials said, after two officials in the West Wing tested positive for coronavirus last week. Oil prices continued to vacillate, with U.S. crude futures for delivery in June gaining 2.4% to $24.72 a barrel. Brent crude, the international benchmark, rose 1%. Among European equities, German broadcaster ProSiebenSat.1 Media rose nearly 13% after private-equity investor KKR disclosed that it had built a 5.2% stake in the company. Logitech International rose 7% in Switzerland after the maker of computers and related equipment said it had exceeded its full-year sales and profit outlook. Shares in Thyssenkrupp fell 12.5% after the German industrial conglomerate posted a wider loss in its second quarter and warned of a hit from the pandemic to the rest of its fiscal year. In Asia, Hong Kong’s Hang Seng Index led the region’s decline with a 1.5% drop Tuesday. Australia’s benchmark S&P/ASX 200 pulled back more than 1%. Investors are concerned about a resurgence of coronavirus infections and a flare-up of trade tension between China and its trading partners including the U.S., according to Rob Mumford, an investment manager for emerging-market equities at GAM Investments. “In a low-growth environment, any sort of potential hit to growth from this type of conflict is clearly negative,” Mr. Mumford said. As trade tension ratchets up, he said, stock markets will remain volatile because of growing uncertainty. Coronavirus outbreaks in places including the Chinese city of Wuhan, the original center of the pandemic, and South Korea, highlight the risks of reopening economies. Wuhan reported six new Covid-19 cases over the weekend. Investors are looking ahead to China’s annual legislative meetings, set to start May 22, months past the usual date, Mr. Mumford said. “People think that China has more conventional firepower, particularly fiscal policy, to support [the economy],” he said. “If things aren’t good, we do think that they will push for more policy support in China and that’s going to support the equity markets.”

via HSN