Rising U.S. coronavirus cases hurt stocks, push debt yields lower

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FILE PHOTO: Traders wear masks as they work on the floor of the New York Stock Exchange as the outbreak of the coronavirus disease (COVID-19) continues in the Manhattan borough of New York, U.S., May 27, 2020. REUTERS/Lucas Jackson

July 16, 2020

By Herbert Lash

NEW YORK (Reuters) – Government debt yields and global equity markets fell on Thursday as a growing number of U.S. coronavirus cases weighed on risk sentiment that also was hurt by deteriorating U.S.-China relations and discouraging Chinese data.

A jump in the number of U.S. COVID-19 cases has forced states such as California to reduce business activity again, sparking fears of further economic damage and taking the shine off a Wall Street rally built on recovery hopes.

The pandemic continues to surge in many Southern and Western states, with 67,404 new U.S. cases reported as of Wednesday by the Centers for Disease Control and Prevention. The number of new cases in European and Asian developed countries is in the hundreds, with the exception of Russia and the UK, according to daily situation reports by the World Health Organization.

Data showed that the resurgence in new cases was chipping away at a budding recovery. While U.S. retail sales rose a better-than-expected 7.5% in June, a Labor Department report showed 1.3 million people filed for state unemployment benefits during the week ending July 11, down just 10,000 people from the prior period.

The S&P 500, less than 6% off from its all-time peak in February, slipped from a rally that pushed it to a five-week high.

U.S. stocks are taking a pause after a strong run-up in recent days, said Jon Adams, senior market strategist at BMO Global Asset Management in Chicago.

“There is a bit more concern today at least around the resurgence of the virus, and initial jobless claims were a bit higher than expectations,” Adams said.

“We do think we might see a pause in the resumption of economic recovery that we’ve seen over the last couple of months,” he said.

MSCI’s world equity index, which tracks shares in 49 nations, fell 0.89% to 544.9.

On Wall Street, the Dow Jones Industrial Average fell 0.88%, the S&P 500 lost 0.67% and the Nasdaq Composite dropped 0.93%.

Treasury yields fell and gold eased, though futures contracts remained above $1,800 an ounce. The 10-year Treasury note fell 0.2 basis point to yield 0.6102%.

Relations between the world’s two largest economies have sunk to the lowest point in decades with new points of contention surfacing almost daily.

The Trump administration is considering banning travel to the United States by all members of the Chinese Communist Party and their families, a person familiar with the matter said, a move that would worsen already-tense U.S.-China relations.

China accused the United States of “gangster logic” after President Donald Trump ordered an end to Hong Kong’s special status under U.S. law in response to China’s imposition of new security legislation on the former British colony.

Asian stock markets fell overnight and the Chinese yuan slipped as China grappled with the pandemic and renewed tensions with the United States that span trade, technology and geopolitics.

The risks to China’s economy were partly reflected in data that showed Chinese consumers kept their wallets tightly shut in June. Retail sales slid 1.8%, the fifth month of decline and worse than a forecast for 0.3% growth last month.

In currency markets the euro, which hit a four-month high of $1.1452 on Wednesday, slid0.29% at $1.1377. The dollar indexrose 0.356% at $96.3340 and the yen was up 0.43% at $107.3800.

Economic activity in the 19-country euro zone had shown signs of a “significant, though uneven and partial recovery,” European Central Bank President Christine Lagarde said.

But the outlook remained uncertain amid risks of a second wave of infections and the ECB will use its stimulus firepower fully even as the euro zone economy shows some signs of rebounding from its pandemic-induced recession, Lagarde said.

Oil prices eased after OPEC and allies such as Russia agreed to taper record supply curbs from August, though the drop was cushioned by hopes for a swift pickup in U.S. demand after a big drawdown from the country’s crude stocks.

Brent crude futures settled down 42 cents at $43.37 a barrel, while U.S. crude fell 45 cents to settle at $40.75 a barrel.

Spot gold prices fell below the $1,800 an ounce, but futures held above the key level. U.S. gold futures settled down 0.7% to $1,800.30.

(Reporting by Herbert Lash; Editing by Bernadette Baum and Jonathan Oatis)

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