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Stocks struggle as US coronavirus outbreaks threaten recovery

Global stocks struggled to gain ground on Wednesday following signs that a surge in US coronavirus cases could undermine a recovery in the world’s biggest economy.

In Europe, equities fell for a second day, with the region-wide Stoxx 600 shedding 0.6 per cent in early trading along with London’s FTSE 100.

China’s CSI 300 of Shanghai and Shenzhen-listed stocks however closed 1.6 per cent higher, extending this week’s rally to more than 8 per cent with the index heading for a seventh week of gains. That puts the mainland Chinese stocks benchmark on course for its biggest weekly gain since December 2014.

Elsewhere in the Asia-Pacific region, Japan’s Topix index fell 0.9 per cent while Australia’s S&P/ASX 200 dropped 1.5 per cent and South Korea’s Kospi declined 0.2 per cent.

“A drip-feed of negative stories on the economic outlook as well as Covid headlines from all around the world dampened investor sentiment,” said Jim Reid, strategist at Deutsche Bank.

In Hong Kong, the Hang Seng added 0.3 per cent but shares in HSBC fell 3 per cent following a report that the Trump administration could target the city’s currency peg to the US dollar in retaliation for Beijing’s sweeping new security law.

However, currency traders largely brushed off the report. The Hong Kong dollar was lodged at the strong end of its trading band at 7.7501. “The odds are low that the US decides to target the Hong Kong dollar as it could undermine the credibility of the US dollar,” said Qi Gao, a strategist at Scotiabank.

US stock futures turned positive, tipping the S&P 500 to open 0.2 per cent higher. The index ended a five-day positive streak on Tuesday to close 1.1 per cent lower as investors sought the safety of haven assets including US Treasuries and UK gilts.

A recent rally in global markets has been challenged by spiralling Covid-19 outbreaks in states including Texas, California and Florida. US infections rose by more than 50,000 on Tuesday while the number of deaths jumped back to levels not seen since June.

Raphael Bostic, president of the Federal Reserve Bank of Atlanta, told the Financial Times on Tuesday that the US economic rebound could stall as a result of the outbreaks, which have led to new lockdown measures in some places.

Traders in Asia said fund managers were seeking to take some risk off the table ahead of the corporate earnings season and an expected summer lull. 

“The risk to global outlook seems skewed to the downside still,” said Johanna Chua, a strategist at Citi, pointing to concerns over another outbreak of coronavirus cases in various parts of the world and uncertainties stemming from the US presidential election.

There was no obvious dash for safer corners of the market on Wednesday in Asia trading. Gold was 0.2 per cent lower at $1,801.50 a troy ounce. The yield on US 10-year Treasuries, another haven during uncertain times, added 0.003 percentage point to 0.652 per cent. Yields rise when bond prices fall.

In commodities, oil remained in its recent trading range as investors weighed up the impact on demand from the US Covid-19 flare-up. Brent, the international marker, slipped 0.5 per cent to $42.88 a barrel while West Texas Intermediate, the US benchmark, was down 0.4 per cent at $40.43 a barrel. 

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