World stocks near record highs as investors weigh Covid risks

Surging European business activity, US jobs report lift sentiment

Photograph: iStock

Photograph: iStock

 

World stocks stayed close to record highs on Monday as investors weighed surging European business activity and a welcome US jobs report against worries about the highly transmissible Delta variant of Covid-19.

The Stoxx index of 600 leading European companies was 0.3 per cent higher, reversing earlier losses after data showed euro zone businesses expanded activity at the fastest rate in 15 years in June.

Activity for British services firms also soared in June, albeit at a slightly slower rate.

Britain’s FTSE was up 0.5 per cent ahead of an announcement by Prime Minister Boris Johnson at expected to confirm an end to Covid-19 restrictive measures in England on July 19th.

French shares also recouped losses sustained after Health Minister Olivier Veran warned that France could be heading for a fourth wave of the pandemic due to the Delta variant.

Covid-19 angst also weighed on shares in Japan: The Nikkei fell 0.6 per cent to a two-week low following a surge in infections in Tokyo, just weeks before the city hosts the Olympics.

Japan’s services sector activity shrank for the 17th straight month in June, a survey showed.

MSCI’s broadest index of Asia-Pacific shares outside Japan was flat.

China’s blue-chip stock index recovered from earlier losses to close 0.1 per cent higher as pledges by Beijing to continue policy support for its tech sector helped counter worries about a crackdown on ride-hailing giant Didi Global and scrutiny of other platform companies in the country.

The MSCI All Country World index closed at a record 724.66 last week, and was 0.1 per cent higher on Monday.

Trading was thinner than usual with US markets closed for the extended 4th of July weekend.

“Markets in general are still trying to find their feet,” said James Athey, investment director, Aberdeen Standard Investments.

“Equities, of course, continue to shrug off or ignore anything that might be considered remotely negative as they continue their merry and complacent dance towards an inevitable reckoning.”

Flat open

S&P 500 futures signalled a flat open for Tuesday, after the index closed 0.8 per cent higher at a record on Friday. The Dow Jones Industrial Average rose 0.4 per cent and the Nasdaq Composite added 0.8 per cent. setting another record.

U.S. non-farm payrolls increased by a bigger-than-expected 850,000 jobs last month, data on Friday showed. But the unemployment rate unexpectedly ticked up to 5.9 per cent from 5.8 per cent, while the closely watched average hourly earnings, a gauge of wage inflation, rose 0.3 per cent last month, lower than the consensus forecast for a 0.4 per cent increase.

“The goldilocks print suggests there is no need to accelerate the tapering timeline or the implied rate hike profile,” Tapas Strickland, an analyst at National Australia Bank, wrote in a client note.

“Overall the level of payrolls is still 6.8 million below pre-pandemic February 2020 levels, and is still below the level of substantial progress needed by the Fed. As such there is nothing in this report for the Fed to become hawkish about.”

Eyes will be trained on the minutes of the Federal Open Markets Committee meeting from last month, when policymakers surprised markets by signalling two rate hikes by the end of 2023.

Commentary by Fed officials since then has been more balanced, particularly from Chair Jerome Powell, as investors parse Wednesday’s release for further clues on the timing of policy tightening.

Euro zone government bond yields nudged higher but analysts expect the recent downward trajectory to resume after the U.S. payrolls data.

Germany’s 10-year Bund yield was up by one basis point at -0.222 per cent.

The dollar flagged after dropping from a three-month high at the end of last week, pressured by the weaker details of the U.S. payrolls report.

It gained about 0.2 per cent against the New Zealand dollar , which sat at $0.7022, traded 0.1 per cent lower at 110.92 yen and fell 0.1 per cent to $1.1876 per euro.

Gold was up 0.3 per cent to $1,791.29 an ounce.

Crude oil climbed as OPEC+ talks dragged on. Saudi Arabia’s energy minister pushed back on Sunday against opposition by fellow Gulf producer the United Arab Emirates to a proposed OPEC+ deal and called for “compromise and rationality” to secure agreement when the group reconvenes on Monday.

Brent crude added 0.2 per cent to $76.32 a barrel, and U.S. crude gained 0.2 per cent to $75.31 a barrel. – Reuters