Market Overview

Shares falter as U.S. stimulus buzz fades

Global shares stumbled on Friday as hopes of a fiscal boost from a $1.9 trillion U.S. stimulus plan were smothered by the prospect of stricter lockdowns in France and Germany and a resurgence of COVID-19 cases in China. European stocks followed Asian markets lower, with the pan-European STOXX 600 down 0.8% and London’s FTSE 100 0.8% weaker, with the latter clobbered by data showing Britain’s economy shrank in November for the first time since the initial COVID-19 lockdown last spring.

The MSCI world equity index, which tracks shares in 49 countries, was 0.3% lower. S&P 500 e-mini futures shed 0.3% to 3,779. Earlier on Friday, an Asian regional share index had edged near record highs after U.S. President-elect Joe Biden proposed a $1.9 trillion stimulus plan to jump-start the world’s largest economy and accelerate its response to the coronavirus. In prime-time remarks on Thursday, Biden outlined a proposal that includes $415 billion aimed at the COVID-19 response, some $1 trillion in direct relief to households, and roughly $440 billion for small businesses and communities hard hit by the pandemic.

But that initial boost later faded as risk appetite waned, lifting bond prices and the dollar, and hitting equities. Investors also digested the prospect of rising taxes to pay for the plan. Biden’s comments came after Federal Reserve Chair Jerome Powell struck a dovish tone in comments at a virtual symposium with Princeton University. Powell said the U.S. central bank is not raising interest rates anytime soon and rejected suggestions the Fed might start reducing its bond purchases in the near term. Investor concerns over the prospects for a global economic recovery were raised after France strengthened its border controls and brought forward its night curfew by two hours to 6 p.m. for at least two weeks to try to slow the spread of infections.

U.S. earnings season kicked into full swing with results from JPMorgan, Citigroup and Wells Fargo. JPMorgan Chase & Co reported a much better-than-expected 42% jump in fourth-quarter profit on Friday, driven by the release of some of the reserves it had built up against coronavirus-driven loan losses. Investors will be looking to see if banks are starting to take down credit reserves, resume buybacks, and provide guidance that shows the economy is improving, said Thomas Hayes, chairman of Great Hill Capital in New York.

In the currency market, the U.S. dollar rose. The dollar index was at 90.407 versus a basket of currencies, up 0.2% on the day. It was on track for a weekly gain of around 0.4%, making this its strongest week since November.

Shares falter as U.S. stimulus buzz fades, Reuters, Jan 15

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