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Stocks struggle as US virus outbreaks threaten recovery

Global stocks struggled to gain ground following signs that a surge in US coronavirus cases could undermine a recovery in the world’s biggest economy.

Japan’s Topix index edged 0.3 per cent higher in early Asia-Pacific trading on Wednesday while Australia’s S&P/ASX 200 and South Korea’s Kospi both fell 0.5 per cent.

China’s CSI 300 of Shanghai- and Shenzhen-listed stocks advanced 0.8 per cent to extend this week’s rally to more than 7 per cent. Hong Kong’s Hang Seng added 0.3 per cent.

Overnight on Wall Street, the S&P 500 fell 1.1 per cent to end a five-day positive streak as investors sought the safety of haven assets including US Treasuries and UK gilts.

Futures pointed to the S&P 500 opening 0.2 per cent higher later on Wednesday, with London’s FTSE 100 tipped to drop 0.5 per cent.

A recent rally in global markets has been challenged by spiralling Covid-19 outbreaks in states including Texas, California and Florida. US infections rose by more than 50,000 on Tuesday while the number of deaths jumped back to levels not seen since June.

Raphael Bostic, president of the Federal Reserve Bank of Atlanta, told the Financial Times on Tuesday that the US economic rebound could stall as a result of the outbreaks, which have led to new lockdown measures in some places.

Traders in Asia said fund managers were seeking to take some risk off the table ahead of the corporate earnings season and an expected summer lull. 

Investors for now seemed willing to brush off frictions between the US and China. The Hong Kong dollar was unshaken by a report that advisers to US President Donald Trump were considering measures that could target its peg to the US currency in retaliation for a security law Beijing has imposed on the city. At 7.7501 per greenback, the Hong Kong currency was lodged at the strong end of its trading band.

Investors “are starting to see through the shrill rhetoric from both sides and starting to realise that there is limited economic impact from the war of words”, said David Chao, a strategist at Invesco.

There was no obvious dash for safer corners of the market on Wednesday in Asia trading. Gold was 0.2 per cent lower at $1,806.50 per troy ounce. The yield on US 10-year Treasuries, another haven during uncertain times, added 0.01 percentage point to 0.648 per cent. Yields rise when bond prices fall.

In commodities, oil remained in its recent trading range as investors weighed up the impact on demand from the US Covid-19 flare-up. Brent, the international marker, slipped 0.4 per cent to $42.92 per barrel while West Texas Intermediate, the US benchmark, was down 0.3 per cent at $40.51 per barrel. 

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