Wall Street mixed as investors weigh Covid-19 options

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Wall Street’s major bourses were mixed as investors considered whether the acceleration of coronavirus infections in the US would lead to further tightening of lockdown measures that could hold back economic recovery.

The S&P 500 opened 0.1 per cent lower while the Dow Jones Industrial Average was up 0.4 per cent and the tech-heavy Nasdaq slipped 0.8 per cent. Equities endured some choppy trading in Europe, with London’s FTSE 100 gaining 0.5 per cent and the regional benchmark Stoxx Europe 600 largely unchanged.

Investors have been considering the risks of a significant setback in the recovery of the world’s largest economy a day after top US health officials said that the window to halt the pandemic’s spread across America was closing.

Mark Haefele, chief investment officer at UBS Global Wealth Management, said the latest Covid-19 developments in the US “can potentially slow the recovery, but are unlikely to derail it”.

“With virus cases still rising in a number of US states, a more volatile trial-and-error approach to reopening now appears more likely, but we expect any new restrictions to be localised,” he said.

The US has 2.5m confirmed Covid-19 cases and more than 125,000 deaths from the disease — a quarter of the 10m infections and half a million global fatalities, according to Johns Hopkins University.

Alex Azar, US health and human services secretary, said on Sunday that Covid-19 cases were “surging” in the southern US where several states ended lockdowns early. He accused the Trump administration of being “in denial about the problem”.

Hours earlier, shares in the Asia-Pacific region suffered heavy losses, with Japan’s benchmark Topix index 1.8 per cent lower, Hong Kong’s Hang Seng down 1 per cent while South Korea’s Kospi slipped 1.9 per cent.

The S&P 500 last week fell 2.9 per cent after the Federal Reserve said it would limit share buybacks and dividends by America’s biggest banks, and Texas and Florida took steps to reverse their reopening measures, stoking fears that a nascent economic recovery could be thwarted.

Some investors are concerned that a rally in stocks since March based on hopes of a strong economic rebound following the pandemic may have gone too far.
“Equities were getting ahead of economic fundamentals,” said Tai Hui, chief Asia market strategist at JPMorgan Asset Management.

However, other strategists believe that the market rally will power ahead next month as economic data are likely to pick up. Sebastien Galy of Nordea Asset Management said equities were under pressure due to the rise in Covid-19 cases in the US. He added that, as the end of the month and the quarter approaches, investors are obliged to sell some stocks to rebalance their portfolios.

“This pressure should ebb as we start a new month while economic data should start to show some signs of an economic recovery,” he said.

The US dollar partially reversed gains from last week, as it shed 0.3 per cent against a basket of currencies. Meanwhile, the British pound fell to a three-month low against the euro, after it dropped 0.7 per cent to trade at €1.0913, as intensified Brexit talks got under way on Monday.
Crude steadied after positive economic data raised hopes of demand recovery as Chinese industrial profits rebounded in May, and eurozone businesses and consumers began to show signs of confidence in a recovery.

Brent crude, the international benchmark, was up 0.6 per cent at $41.28 a barrel while West Texas Intermediate, the US marker, gained 0.9 per cent to $38.85.

It reversed losses in the wake of Chesapeake Energy, a pioneer of the US shale revolution, declaring bankruptcy following an oil price crash that has ravaged producers. Analysts said the company’s Chapter 11 filing could prompt others in the shale sector to follow suit.

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