Asian shares and the dollar made a cautious start to the new month on Monday as U.S. lawmakers struggled to hammer out a new stimulus plan and a global surge of new coronavirus cases showed no sign of abating.
MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.2%, though that was from a six-month top. Japan's Nikkei added 1.1% courtesy of a pullback in the yen, while South Korea shares eased 0.3%.
E-Mini futures for the S&P 500 ESc1 dithered either side of flat.
Investors were nervous at the lack of a new stimulus package in the United States with White House Chief of Staff Mark Meadows not optimistic on reaching agreement soon on a deal.
On Friday, Fitch Ratings cut the outlook on the United States’ triple-A rating to negative from stable, citing eroding credit strength and a ballooning deficit.
The credit rating agency also said the future direction of U.S. fiscal policy depends in part on the November election and the resulting makeup of Congress, cautioning there is a risk policy gridlock could continue.
Strong results from tech giants helped the S&P 500 climb 5.5% last month, while the NASDAQ rose 6.8%. Other sectors, however, did not fair nearly as well as many states rowed back on opening their economies in the face of surging infections.
“Amid improvements in business sentiment, signals are emerging that the initial boost from pent-up demand is fading and consumer confidence is slipping lower,” wrote economists at Barclays in a note.
“Together with concerns about labour market and virus developments, this clouds the outlook and could be exacerbated if U.S. fiscal support is not renewed in time.”
Much will depend on what key data show this week including the ISM survey of manufacturing later on Monday and the crucial payrolls report on Friday.
The uncertainty saw benchmark 10-year Treasury yields US10YT=RR hit their lowest since March at 0.52% last week and were currently just a fraction higher at 0.53%.
The 10-year real rate has broken below -1% for the first time amid a marked flattening of the yield curve as investors wager on yet more accommodation from the Federal Reserve.
That took a heavy toll on the U.S. dollar which suffered its worst monthly drubbing in a decade in July even after rallying on Friday as bears took profits on crowded short positions.[USD/]
The dollar was last at $1.1782 per euro, with the single currency having gained 4.8% in July to stretch as far as $1.1908. Against a basket of currencies, the dollar stood at 93.399 having touched its lowest since May 2018 on Friday at 92.538.
The dollar was a shade lower on the Japanese yen at 105.80 after hitting a 4-1/2-month low last week at 104.17.
It had bounced in part when Japanese Finance Minister Taro Aso described the yen’s recent rise as “rapid”, signalling concern that a strong currency could add pain to an export-led economy already in recession.
The decline in the dollar combined with super-low real bond yields has been a boon for gold which boasted its biggest monthly gain since February 2016.
The metal made a fresh peak early Monday at $1,984 an ounce and seemed on track to take out $2,000 soon.
“Even though gold is up about 30% this year, we believe there is still plenty of upside left in this rally,” wrote analysts at ANZ.
“The backdrop remains high conducive; with unwavering support from central banks likely to see monetary easing policy remain in place for the foreseeable future. This will keep bond yield low, raise inflation expectations and potentially keep the USD weak.”
They had a 12-month gold price target of $2,300/ounce.
Oil prices were supported by news that U.S. oil output cuts in May were the largest on record, even as the outlook for demand suffered amid more coronavirus lockdowns.
Brent crude futures dipped 7 cents in early trade to $43.45 a barrel, while U.S. crude eased 8 cents to $40.19.
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