A rally in global stocks paused on Wednesday following the release of disappointing US jobless data and a cautious appraisal on the health of the UK economy.
Wall Street’s S&P 500 pulled back from Tuesday’s record high, closing 0.2 per cent lower after an unexpected jump in US unemployment claims suggested spiralling coronavirus cases and local shutdowns had delivered a further blow to the US economy.
The subdued sentiment extended after the Federal Reserve released minutes of its past monetary meeting. “The bottom line [from the minutes] is that they [the Fed] have to remain accommodative and were very careful not to seem less accommodative,” said Steve Sosnick, Interactive Brokers chief strategist, after the minutes showed officials discussed enhancing the central bank’s guidance on bond buying.
The technology-focused Nasdaq Composite — which has typically outperformed on days when the risks to the economy are front and centre — closed up 0.5 per cent.
A rise in first-time unemployment claims to 778,000 last week was “discouraging”, said Michelle Meyers, head of US economics at Bank of America, noting it was a second consecutive week of increased claims in a labour market that has been “quite resilient” overall.
Markets would ultimately be looking to the US government, instead of the central bank, to provide further support to the economy, said Peter Dixon, global economist at Commerzbank.
“Many businesses will not be generating significant income to continue to survive,” Mr Dixon said. “What can monetary policy do about that? The answer is not very much. This is a long-term fiscal problem.”
In Europe, the Stoxx 600 closed down 0.1 per cent, although the continent-wide benchmark remained on course for its best month on record, having climbed 14 per cent so far in November.
London’s FTSE 100, which slid 0.6 per cent, was among the worst performing indices in Europe, while the domestically focused FTSE 250 dipped 1.1 per cent.
This came as Rishi Sunak, UK chancellor, announced his latest spending review on Wednesday in which the Office for Budget Responsibility forecast that the British economy would shrink 11.3 per cent this year. The economy would not return to its pre-pandemic size until the end of 2022, the OBR said.
Analysts, however, remain generally positive about the prospects for the blue-chip FTSE 100. The index, which has gained about 15 per cent this month, has a high concentration of businesses that would benefit from a global recovery, such as oil producers, miners and banks.
“The FTSE offers a lot of exposure to sectors investors want to be in,” said Paul Leech, co-head of global equities at Barclays. “We are seeing stronger flows into the FTSE than we have for quite some time.”
The yield on the 10-year US Treasury rose marginally to end the session at 0.883 per cent.
Commodities investors looked past the economic news and kept their long-term focus on activity resuming once Covid-19 vaccines are widely available. Global benchmark Brent crude, which has gained almost 30 per cent in the past month, rose 1.9 per cent to $48.81 a barrel.
Additional reporting by Henry Sanderson
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