European shares slipped on Tuesday as investors awaited a pivotal US presidential debate and watched for progress of a fiscal stimulus package in Washington.
The broad Euro Stoxx 600 fell 0.4 per cent, eroding hefty gains from a day earlier, with indexes in Frankfurt, Paris and London losing between 0.2 per cent and 0.5 per cent.
Among the sectors in negative territory were growth-sensitive banks, automakers and travel & leisure, all down 0.8 per cent-1.5 per cent.
US shares were set to open a touch lower, with futures for the S&P 500 and Nasdaq giving up earlier gains to slip into negative territory. Hard-hit sectors like hotels, banks and airlines had made strong gains on Monday.
Investors are weighing the potential impact on the US economy of either the re-election of president Donald Trump or a victory for Democratic presidential nominee Joe Biden.
Many see a Biden victory increasing the chances of further fiscal stimulus to counter the economic damage from the Covid-19 pandemic, judging such a scenario a boon for stocks.
“What seems clear is that were you to see a blue wave, a Democratic sweep, you’d see substantial fiscal stimulus,” said Mike Bell, global market strategist at J.P. Morgan Asset Management. “The risk, I have always thought, to this recovery is premature fiscal tightening.”
With time running out to change minds or influence undecided voters, the stakes are high as the two White House candidates take the stage five weeks before the November 3rd election.
Biden’s campaign has seized on a fresh line of attack on the eve of the debate with Trump – set for after the US market close – accusing the Republican incumbent of gaming the system to avoid paying his fair share of taxes.
“Tonight’s debate will be critical, since it represents one of the last set-piece opportunities for either candidate to change the contours of the race,” Deutsche Bank analysts wrote in a note.
The MSCI world equity index, which tracks shares in nearly 50 countries, was flat.
As the global death toll from Covid-19 rose past 1 million, according to a Reuters tally, investors have remained focused on prospects for a stimulus package to help the US economy recover from the damage wrought by the virus.
US House of Representatives speaker Nancy Pelosi said on Monday that Democratic lawmakers had unveiled a new $2.2 trillion coronavirus relief bill. Pelosi in recent days has said she thinks a deal can be reached with the White House on a new coronavirus relief package and that talks were continuing.
Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan was flat, shedding earlier gains.
Stimulus packages were also in focus in bond markets, where Germany’s 10-year bond yield fell to its lowest in seven weeks before first-estimate inflation readings for September.
Also in focus was economic data due later in the day that is set to shed light on the US economy’s progress, with consumer confidence and home price data on the agenda.
The dollar held steady against a basket of currencies at 94.185, drifting away from a two-month high of 94.745 reached last week.
Elsewhere, sterling extended its overnight gains on optimism about a Brexit trade deal as the European Union and Britain kicked off a decisive week of talks.
The pound gained 0.2 per cent to $1.2853, just below the $1.2930 mark touched overnight. Against the euro, sterling changed hands at 90.775 pence.
“The surge of the pound yesterday was a reflection of the more positive mood-music as the talks kicked off,” MUFG analysts wrote, adding the pound could extend gains this week. – Reuters
