European shares struggled for momentum on Friday as doubts about extra monetary stimulus and political worries ranging from November’s U.S. elections to Brexit kept investors on edge.
Growing fears over a messy no-deal Brexit dragged sterling to new 5-1/2-month lows after the European Union told Britain it should urgently scrap a plan to break their divorce treaty.
In other political wrangling, the U.S. Senate on Thursday killed a Republican bill that would have provided around $300 billion in new coronavirus aid, as Democrats seeking far more funding prevented it from advancing.
That followed European Central Bank President Christine Lagarde earlier in the day appearing to rule out measures to weaken the euro.
“Investors were disappointed,” said Milan Cutkovic, market analyst at AxiCorp. “They were hoping that the central bank will boost the stock market rally by paving the way for further stimulus measures and talking down the euro.”
The pan-European STOXX 600 was up 0.1% in a choppy session. MSCI's broadest index of Asia-Pacific shares outside Japan added 0.3%, moving away from a one-month trough touched earlier this week. Japan's Nikkei rose after Tokyo dropped its coronavirus alert by one notch from the highest level as COVID-19 cases trend down.
U.S. futures were higher, pointing to a recovery on Wall Street after losses on Thursday put the S&P 500 and the Nasdaq Composite on course for a second straight week of losses. On Friday, Nasdaq 100 futures were up 0.9% and S&P 500 futures 0.8% firmer.
“Most of the risks faced by markets for the rest of the year are political, so around the U.S. election, the UK government’s exit from the EU and U.S.-China tensions,” said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners.
“As people take a step back to assess these risks, we’re in this consolidation, holding pattern, which was needed as markets aren’t cheap at the moment.”
The NYSE Fang+ index of big 10 tech companies has lost 5.4% so far this week -- its biggest weekly loss since the market turmoil in March if sustained by the end of Friday.
Still, the index is more than double its March trough and investors have gathered that their high valuations are justifiable in light of near zero interest rates in much of the developed world and massive liquidity the world’s central banks have created.
Many investors have said the selloff was a healthy correction.
Yet, with the world’s stocks still trading near the most expensive levels relative to profit outlook since the 2000 tech bubble, some analysts called for caution.
“Global shares had rallied on expectations of economic recovery from lockdowns. But as the autumn begins (in the northern hemisphere), people wonder if coronavirus infections could worsen,” said Kozo Koide, chief economist at Asset Management One.
“You never know if vaccine deployment is that easy nor if banks need to aside more provisions for struggling firms in hospitality sector. Considering all that, investors are likely to question the current valuations can be justified,” he said.
In currency markets, the British pound was set for its worst week against the euro and the dollar since mid-March. On Friday it was down 0.1% against the euro at 0.9285 pence and 0.2% to the dollar to $1.2825.[FRX]
The European Union is ramping up preparations for a tumultuous end to the four-year Brexit saga after Britain explicitly said this week that it plans to break international law by breaching parts of the Withdrawal Agreement treaty that is signed in January.
After crashing by a record 20% in the second quarter, Britain’s economy grew by 6.6% in July, slower than June’s monthly rate, the Office for National Statistics (ONS) said.
The euro rose slightly on Friday and was last trading up 0.4% at $1.1863 after Thursday's ECB press conference. But any move higher may be curtailed, however, by ECB chief economist Philip Lane's warning on Friday that a strong euro will further dampen price pressures.
The U.S. dollar was set for a second week of gains, an index which tracks it against major currencies showed. It gained overnight as U.S. equity market jitters had investors sticking to safer assets.
Government bond yields across the euro area fell after Lane’s comments that inflation will be persistently low in the coming years.
Oil prices were under pressure from a surprise rise in U.S. stockpiles and weak demand due to the coronavirus pandemic.
Brent crude was down 0.4% at $39.91 a barrel after falling nearly 2% on Thursday. U.S. crude was flat at$37.28 a barrel, having fallen 2% in the previous session.
As the U.S. dollar rebounded, gold was down 0.5% at $1,943.53 per ounce after hitting its best level since Sept. 2 on Thursday.
Additional reporting by Hideyuki Sano in Tokyo; Editing by Toby Chopra and Louise Heavens