Investors worry whether global markets have lost rally steam

Past weeks’ dramatic rebound seen stalling amid rising number of new COVID-19 infections

Dubai: Investors worldwide worry a dramatic rebound seen in stocks during the past weeks is stalling amid rising number of new infections in several regions and renewed global economic uncertainty.

After a colossal rally seen in markets, investors have turned increasingly cautious as recovery in the world’s largest economy was seen wobbling as new COVID-19 cases surged and political problems rose the country. And the sentiment will continue to drive markets in the week ahead as well.

Rally loses steam

The S&P 500 benchmark on Wall Street currently stand some 4 per cent below all-time highs, but its weekly advances have grown progressively smaller in July, as some investors who have racked up big gains during the equity rally of the last few months are now turning cautious.

The benchmark index plunged more than 33 per cent from its Feb. 19 high to its low on March 23. As restrictions eased, and the US Federal Reserve pumped trillions into stabilizing markets, many stocks stormed back, lifting the S&P 500 more than 45 per cent as economic activity slowly returned.

Stocks hint at fatigue

The fact that stocks are hinting at fatigue after a rapid run uphill, is also because companies that have in the past weeks reported results are showing the impact of the lockdown – yet another reason why stocks may not find enough triggers to sustain the momentum this week.

Fed Chair Jerome Powell said last week the recent surge in coronavirus cases is starting to drag on US economic activity, and this has prompted investors to take a back seat.

Safe-haven assets rise

Meanwhile, safe-haven assets like gold gained as the macro picture clouded the shine seen among Big Tech stocks. Oil prices rose too, benefiting from news that US oil output cuts in May were the largest on record.

Gold hovered near its all-time peak, helped by dollar weakness and dire economic numbers from far and wide that sparked a rush to safety.

Weakening dollar

The dollar has been weakening amid expectations the US Federal Reserve will be forced to maintain its ultra-loose monetary policy for years, a policy seen as debasing the currency.

Edward Moya, senior market analyst with trading firm OANDA, noted the corporate disappointments and said the dollar would remain “a punching bag in the short-term” amid the coronavirus and US government stimulus gridlock.

Stocks end week lower

MSCI’s world equity index, which tracks shares in 49 nations, ended last week down 0.48 per cent, pulled lower by European stocks, which posted their first monthly decline since a market sell-off in March on growing recovery doubts.

On Wall Street, the Dow Jones Industrial Average fell 0.2 per cent, while the S&P 500 barely inched up 0.09 per cent and the Nasdaq Composite added 0.86 per cent. The dollar index, which tracks the greenback versus a basket of six currencies, rose 0.337 points, or 0.36 per cent, to 93.358.

UAE, GCC markets shut for Eid al-Adha
With stock markets in the UAE and elsewhere in the GCC closed on account of Eid-al Adha celebrations on Thursday and Sunday, any major gains will be capped this week after trading resumes tomorrow.
The Dubai Financial Market (DFM) shed 0.4 per cent last week, largely rising through the week before ending down 0.7 per cent on Friday. Meanwhile, the Abu Dhabi Securities Exchange (ADX) rose 0.4 per cent last week after recording a similar-sized drop on Friday.
Both the Dubai and Abu Dhabi bourses have been tracking sentiments seen in markets worldwide. Trading on the UAE benchmarks have turned much cautious the past weeks, just like the global stock markets, and the existing trend is seen continuing in the days to come.
After dropping about 4 per cent in the month of May, the DFM rose 6 per cent in the month of June but slipped 0.5 per cent in July. Similarly, the ADX slipped 2 per cent in May and rose 3.5 per cent in June but slipped 0.2 per cent in July.
Analysts at the Institute of Chartered Accountants in England & Wales (ICAEW) noted that GCC markets will recover at a slower pace than other markets around the world post-pandemic, largely because of the region’s dependence on hospitality and tourism, and the impact of low oil production. They further added that a flight of expats from the Gulf countries also risked weighing on the recovery.
“The Saudi economy has embarked on a recovery in the past couple of months, but fiscal austerity and oil production cuts, as well as the ongoing suspension of pilgrimages, mean that it is likely to be slow going,” cautioned Jason Tuvey, a Senior Emerging Markets Economist at Capital Economics.