Markets moved into risk off mode overnight as some of the world’s most prominent central bankers warned that a vaccine is not an immediate cure for economic damage. Record daily infection rates in the UK, Germany, France, Italy and Spain, and 49 of 50 US states, undermined recent optimism. Bonds rallied, the US dollar and Japanese yen rose, and stocks sold off as markets recalibrated Covid-19 risks.
At a European Central Bank forum the ECB’s Lagarde, Bank of England’s Bailey and the US Federal Reserve’s Powell all warned a vaccine will not ease Covid -19 economic pain quickly. The co-ordinated messaging may be interpreted as a call for further fiscal response from governments, but stands in stark contrast to the enthusiasm displayed this week by global investors.
The difference in performance by key US indices illustrates the shift in market thinking. While all three fell, the tech heavy Nasdaq outperformed the S&P 500 and Dow Jones indices. Investors showed a preference for potential lockdown beneficiaries once again.
Crude oil tumbled as a strengthening dollar and a surprise build in US weekly inventory numbers weighed on trading. Gold made only modest gains as the stronger dollar undermined the yellow metal’s haven status. Bitcoin burst through $16,000 US, adding to its two-month, 60% plus gains.
Asia Pacific markets are looking at a cautious day ahead. Stock futures indicate opening falls as local currencies slide. Weaker manufacturing and food prices in New Zealand this morning are adding to concerns, ahead of Hong Kong GDP data after the market close today.