Market rally stalls as investors reassess vaccine potential

Wall Street stocks turned lower in the last hour of trading on Tuesday as doubts about the strength of economic recovery and scepticism around a potential Covid-19 vaccine triggered a reversal.

Equities had surged on Monday, with global markets recording their best sessions since early April after biotech company Moderna said the initial results from a clinical trial of its vaccine candidate had been positive. But traders reacted to a report on healthcare news website Stat that questioned the strength of Moderna’s data and moved to take profits.

“When you have a lack of clarity in the market, any kind of headline with some credibility to it is going to lead to quite sharp swings,” said Willem Sels, global chief market strategist at HSBC Private Banking.

The Dow Jones Industrial Average closed 1.6 per cent lower as selling of industry bellwethers such as Merck and Procter & Gamble gathered pace in the last half-hour. The S&P 500 fell just over 1 per cent and the technology heavy Nasdaq Composite ended 0.5 per cent lower having been in positive territory until the final hour of trading.

Markets had ended mixed in Europe, with benchmarks largely holding on to Monday’s sharp gains. London’s FTSE 100 ended down 0.8 per cent as sterling bounced against the dollar and the euro, making UK stocks more expensive for international buyers. Frankfurt’s Xetra Dax closed 0.2 per cent higher while in France the lifting of a ban on short selling helped to drag the CAC 40 lower by 0.9 per cent.

Also lifting market sentiment on Monday was news that Germany and France had joined forces to push for a €500bn EU recovery fund, boosting the effort to create a co-ordinated European fiscal response to the crisis.

But analysts at Rabobank warned against welcoming these developments as though they were “already with us”, as there remained significant hurdles for both the EU recovery fund and the Covid-19 vaccine.

“Virus experts urge caution [on a vaccine], so I’ll listen to them,” said Kit Juckes, macro strategist at Société Générale.

On Tuesday gold prices climbed almost 1 per cent and US 10-year Treasury yields slid 0.28 percentage points to 0.714 per cent as investors inched back into the relative safety of government debt.

Expectations for an economic rebound from the pandemic, due in part to robust support measures by big central banks, have helped to drive a sharp rise in global stocks over the past two months. The S&P 500 is up about a third from a low in late March.

“Equities are pricing in an optimistic path forward,” said strategists at ClearBridge Investments, noting that investors were focused on the potential path of the economic recovery.

The positive sentiment spilling over from Monday’s trading helped to overshadow growing concerns over a US-China rift, with Huawei emerging as a significant source of tension. The Chinese telecoms equipment maker this week warned that new sanctions from Washington put its survival at stake.

Beijing also hit back at Donald Trump’s threat to withdraw from the World Health Organization, accusing the US president on Tuesday of attempting to shift the blame for his own handling of the coronavirus crisis.

In the Asia-Pacific region, Hong Kong’s Hang Seng index rose 1.9 per cent, while China’s CSI 300 index of Shanghai and Shenzhen-listed stocks added 0.9 per cent. Japan’s Topix index climbed 1.8 per cent and Australia’s S&P/ASX 200 rose by the same margin.

Oil prices also paused on Tuesday following a recent rally spurred by signs that crude demand was picking up and supply cuts led by Opec had begun to take effect.

The US marker West Texas Intermediate was 1.7 per cent higher at $32.50 a barrel after jumping 8 per cent a day earlier, having moved back above the $30 mark for the first time since mid-March. Brent crude, the international benchmark, slipped 0.9 per cent to $34.51 a barrel.

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