A global equities rally lost steam in European markets on Tuesday, but remained near record highs reached after the release of groundbreaking results from a Covid-19 vaccine trial.
Stocks struggled for traction, gaining and losing ground in early trading. The region-wide Stoxx Europe 600 index was up 0.4 per cent by mid-morning while London’s FTSE 100 was up 1.3 per cent and Frankfurt’s Xetra Dax was flat. Gold, a haven asset that sold off heavily on Monday, rose 1.3 per cent to $1,885 per troy ounce.
Analysts warned that approval of a global vaccine was still uncertain, and noted cases had continued to surge in the US where investor jitters have been stoked by incumbent president Donald Trump’s refusal to concede the election and efforts to challenge Joe Biden’s victory.
“Encouraging results are welcome but we argue for caution: a vaccine available in 2021 was already most investors’ base case,” said Padhraic Garvey, regional head of research, Americas, at ING.
A report by the US Federal Reserve released overnight also warned that “investor risk appetite and asset prices have increased in recent months but could suffer significant declines should the pandemic take an unexpected course or the economic recovery prove less sustainable”.
In the US, futures contracts tipped the benchmark S&P 500 to rise 0.2 per cent when Wall Street opens, with the tech-heavy Nasdaq 100 expected to slip 0.7 per cent. The tech sector lost ground on Monday, as investors shunned companies that had been beneficiaries of the coronavirus crisis.
But a more systemic rotation out of Big Tech “is going to be gradual”, said Sophie Huynh, multi-asset strategist at Société Générale. More certainty about the course of the pandemic and the rollout of a vaccine would be needed before such a change takes hold in earnest, she added.
Oil prices built on Monday’s rally, with global marker Brent crude climbing a further 1.5 per cent to $43.03 a barrel.
The announcement on Monday by US drugmaker Pfizer and Germany’s BioNTech that their Covid-19 vaccine candidate was more than 90 per cent effective in late-stage trials lifted equities that had already been climbing on news of Mr Biden securing the US presidency.
“This offers a ray of hope that the market did not hesitate to take advantage of,” said Tai Hui, chief Asia market strategist at JPMorgan Asset Management. Investor reaction “is in line with our expectations of what would happen if there are signals that some normality can return to our lives”, he added.
In Asia the vaccine news drove stocks higher overnight, with Tokyo’s Topix and Hong Kong’s Hang Seng both up 1.1 per cent. Japan’s Nikkei 225 Average also surged as much as 1.5 per cent, rising above 25,000 for the first time in almost three decades.
But China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks slipped 0.6 per cent following data showing consumer prices rose at their slowest pace in more than a decade in October — with non-food inflation ceasing altogether. The figures suggested weakness in the world’s second-largest economy, which has broadly led the global recovery from the pandemic.
Frank Benzimra, head of Asia equity strategy at Société Générale, said the fall in Chinese stocks was also partly a knee-jerk reaction to the vaccine news as rival exporters now stood a better chance of getting back up to full capacity within 12 months.
“Does it mean the end of the China [stocks] story? Absolutely not,” he said. “It’s a short-term reaction . . . from an equities point of view the fundamentals of the Chinese market are still very good.”
The rally in stocks drew funds out of sovereign debt on Monday as investor appetite for risk returned, pushing yields higher. Bonds regained some of this ground on Tuesday, with the yield on 10-year US Treasuries falling 0.03 percentage points to 0.93 per cent.