US stocks climbed and gold rose towards its highest level since 2012 as investors bet on more fiscal stimulus from central banks in response to the acceleration in new coronavirus infections.
The S&P 500 closed near its session high, rising 0.7 per cent, while the technology-heavy Nasdaq Composite gained 1.1 per cent to set a new record high. Gold’s spot price, meanwhile, moved to within a few dollars of a seven-year high it touched in mid-May, climbing as much as 1 per cent to $1,762 an ounce.
“The strong economic recovery indicated by the latest US economic data is hanging in the balance,” said Carsten Fritsch, a Commerzbank commodities analyst. “There are thus likely to be increasing calls for the US government to implement further stimulus measures [so] the issue of currency debasement [and] inflation will remain high in the minds of market participants.”
European markets retreated, with London’s FTSE 100 and the Euro Stoxx 50 both closing 0.8 per cent lower.
Investor sentiment in recent sessions has been damped down by a sharp increase in new Covid-19 cases in the Americas, Europe and Asia. The US reported 27,465 new cases as of the end of Sunday, with a recent jump in infections in the southern and western parts of the country showing little sign of slowing.
Jesse Edgerton, an economist at JPMorgan, warned that a full recovery from the pandemic was unlikely any time soon given the acceleration in fresh outbreaks. “A patchwork of policy responses across states will be inadequate to eliminate the virus, leaving the fear of Covid-19 as a significant drag on activity in certain sectors,” he said.
Some analysts, however, said the damage to stocks could be limited since there had been few signs that strict lockdowns would be reintroduced on a large scale.
“While investors are cognisant of second-wave risks, their outlook for markets is more sanguine,” said credit strategists at Bank of America, adding that their clients saw limited political appetite for a return to lockdowns.
Frankfurt’s Xetra Dax ended down 0.7 per cent after an outbreak at an abattoir in Germany pushed the country’s coronavirus reproduction number to 2.88 on Sunday. A figure above 1 means the outbreak is expanding.
“If sustained, Germany will have to delay aspects of the reopening and slow the economic recovery,” said Jasper Lawler, head of research at London Capital Group. But for now, “the losses are being contained since officials have so far dismissed the idea of another full lockdown”, he added.
In Asia-Pacific trading on Monday, Hong Kong’s Hang Seng closed down 0.5 per cent and Seoul’s Kospi declined 0.7 per cent. Stock benchmarks in mainland China and Sydney were flat while Tokyo’s Topix index fell 0.2 per cent.
Chinese officials appeared to be controlling an outbreak in Beijing, where there were nine new cases reported as of the end of Sunday, down from 22 a day earlier. Meanwhile, some coronavirus restrictions have been reintroduced in the southern Australian state of Victoria following a rise in cases.
Strategists at Morgan Stanley said China’s decision to lock down parts of the capital to contain the latest outbreak “may prove to be a better response for the purposes of economic growth over the medium term”.
“Quick, decisive action to contain hotspots is likely to feed into greater consumer confidence over time,” they added. “It should allow businesses to remain open for longer, for a given period of time, than the alternative.”
The US dollar dropped 0.6 per cent against a basket of currencies, paring back some gains made during the past two weeks.
Oil extended its recent rally with the price of Brent up 2.3 per cent to $43.14 a barrel and West Texas Intermediate, the US marker, rising 2.1 per cent to $40.46.