June 9, 2020 / 3:08 AM / a month ago

Global Markets: Europe turns red as bulls run out of charge

LONDON (Reuters) - Soaring stocks stalled on Tuesday and high-flying currencies such as the euro and Australian dollar lost altitude, as a weeks-long risk rally hit turbulence.

FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, May 26, 2020. REUTERS/Staff/File photo

It all seemed so sudden. Asian equities had scored their ninth day of gains after landmark highs by Wall Street on Monday, but Europe’s big markets opened with a lurch and were 1.1% in the red by the time a bumpy U.S. restart loomed.

The euro dipped 0.2% in only its second drop in 11 days, safe bonds were back in favour, while another barb from China in its spat with Canberra saw the Aussie dollar drop 1%, having only just set a 10-month high.

“It fells like the FX market is looking at the equity market and thinking perhaps we should position for a correction,” said Societe Generale strategist Kit Juckes, referring to the recent surge in global equity markets.

“It is going to depend on what the U.S. market does today as we have the FOMC (U.S. Federal Reserve policy announcement) tomorrow ... but why wouldn’t you buy some yen at this point?”

The optimism for equity markets came last week after U.S. jobs data showed a sharp decline in the unemployment rate. Wall Street indices surged, with the Nasdaq closing at a record level on Monday.

Global markets were mauled in March amid concern over both the short- and longer-term damage to the world economy from the coronavirus pandemic. But most indices are now back to pre-COVID-19 levels.

MSCI Asia ex-Japan’s overnight advance had set its longest winning streak since early 2018. The 49-country world index is up nearly 45% from 4-year lows struck in mid-March.

“The good news is that this shows central banks’ effort to stabilise the market have worked,” said Tai Hui, chief Asia market strategist at J.P. Morgan Asset Management.

Fears of renewed trade tensions between the United States and China and the second-round impact from higher unemployment and bankruptcies are hanging over the outlook, however.

In its latest Global Economic Prospects report on Monday, the World Bank said advanced economies are expected to shrink 7.0% in 2020, while emerging-market economies will contract 2.5%, their first slump since aggregate data became available in 1960.

On a per-capita gross domestic product basis, the global contraction will be the deepest since 1945-46, when World War Two spending dried up.

BEARS BITE BACK

Tuesday’s wobble in markets saw the safe-haven Japanese yen head as high as 107.93, while the U.S. dollar’s gains elsewhere saw the greenback index make its best spurt since May 22.

A man wearing protective face mask, following an outbreak of the coronavirus disease (COVID-19), walks in front of a stock quotation board outside a brokerage in Tokyo, Japan, March 10, 2020. REUTERS/Stoyan Nenov/File Photo

Big emerging market currencies such as China’s internationally-traded yuan, Brazil’s real and Turkey’s lira backpedalled, while Europe’s stocks were led down by a 3% drop in eurozone bank shares after a six-day run of gains.

The mood shifted in commodity markets, too. Oil prices slipped over 1% in London after Brent had hit its highest in more than three months at $41 a barrel. Gold flipped higher as industrial metals copper, nickel and aluminium all fell.

“While OPEC+’s historic agreement was extended, Gulf nations’ extra voluntary production cut — a massive 1.2m bpd according to Prince Abdulaziz bin Salman — will also end this month,” said commodity strategists at TD Securities.

Additional reporting by Swati Pandey in Sydney and Anshuman Daga in Singapore; editing by Larry King and Kevin Liffey

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