LONDON / SINGAPORE (Reuters) – U.S. Treasury yields dropped to three-week lows, while equity markets were mixed on Tuesday as concerns over possible obstacles to the planned $ 1.9 trillion US stimulus new US President Joe Biden weighed in on investor sentiment.
The rise in coronavirus cases and caution ahead of the US Federal Reserve policy meeting this week have also reduced risk appetite, supporting the dollar against a basket of currencies. Oil prices have fallen.
Yield on 10-year German government bonds, seen as Europe’s safest asset, fell to a two-week low amid yet another outbreak of political turmoil in Italy.
But European stock markets [.EU] it increased slowly after two sessions of declines, with the pan-European STOXX 600 rising 0.8%, after Swiss wealth manager UBS reported an increase in quarterly net income.
“The earnings season so far has been very good, so it comes down to the fact that the market is overbought and has had a strong recovery since January 1, with a lot of positive news being quoted,” said François Savary, chief investment officer Swiss wealth manager Prime Partners, referring to recent losses.
“There is room for some consolidation.”
E-Mini futures for the S&P 500 fell 0.1%. On Monday, the Nasdaq index reached a new peak, but the Dow Jones Industrial Average fell [.N].
South Korea and Hong Kong overcame the losers in Asia overnight, falling more than 2% each. The liquidation also saw Japanese stocks plummet 1% and Chinese blue chips plummet 2%, their biggest loss in one day since 9 September.
All had reached historic highs earlier this month.
The MSCI All Country World index, which tracks stocks in 49 countries, has remained stable, while the MSCI emerging market share index has dropped 1.6%.
Latent tensions in the Taiwan Strait and the South China Sea have increased caution in Chinese markets, where a jump in small cap caps has also caught the attention of regulators.
After a “buy it all” rally over several months, supported by pandemic stimulus packages, near zero interest rates and the start of the COVID-19 vaccination programs, some investors are concerned that markets may be close to the “bubble” territory.
They point to skyrocketing asset prices like bitcoin or, on Monday, the stockpile of video game retailer Gamestop.
US lawmakers agreed that providing COVID-19 vaccines to Americans should be a priority, even when they oppose the size of a pandemic aid package. Democratic majority leader Chuck Schumer, however, warned that the aid package could take four to six weeks.
Disagreements have meant months of indecision in the United States, where COVID-19 cases exceed 175,000 a day and millions of people are out of work.
“We suspect that profits may not be able to achieve what people expect this year,” said Jacob Doo, chief investment officer at Envysion Wealth Management, citing the blockages in Europe and the slow rollout of vaccines in the United States.
“In the technology space, we are wary of FANGS now, simply because there could be antitrust laws that Biden would implement,” he added, using an acronym for major U.S. technology companies, including Facebook and Amazon.
Investors are also looking forward to the Federal Reserve’s Open Market Committee meeting on Tuesday and Wednesday.
“We expect the January FOMC to repeat and reinforce the Fed’s existing dovishness, which is still significant due to recent reduction discussions and other central bank considerations to adapt the policy,” said CitiFX strategist Ebrahim Rahbari in a note.
In relation to a basket of its rivals, the dollar rose 0.2% to 90.65, its highest level since January 20, as stock volatility has reduced the appetite for riskier currencies.
The euro, which fell on Monday after a survey showed German business morale was falling, fell 0.2% to $ 1.2126. [USD/]
The 10-year US Treasury’s benchmark yield fell a fraction to new three-week lows, being last traded at 1.0414%. [US/]
Yields on 10-year bonds in Germany fell a base point to a two-week low of -0.561%, while yields on Italian 10-year bonds rose slightly on the day by 0.655%.
Italian Prime Minister Giuseppe Conte will resign on Tuesday, his office said, hoping that President Sergio Mattarella will give him a mandate to form a new government.
After rising almost 1% on Monday, Brent crude fell 0.5% to $ 55.60 a barrel and American oil lost 0.5% to $ 52.51. [O/R]
Spot gold fell 0.2% to $ 1,852.30 an ounce.
Editing by Shri Navaratnam, Richard Pullin and Catherine Evans