Global stocks nudged lower as concerns over the impact of the coronavirus resurfaced, while Irish stocks slipped following a surge in support for the leftwing nationalist Sinn Féin party in elections over the weekend.
On Wall Street, futures pointed to opening losses of around 0.1 per cent at the open for the S&P 500, while the Stoxx Europe 600 index was off its worst levels as it fell 0.2 per cent.
Stock markets enjoyed a strong rebound last week as investors banked that the economic damage from the novel coronavirus would be limited and that any ensuing shock would be contained by central bank stimulus.
The narrative that has played out over the past few weeks “is now familiar”, said Neil Shearing, chief economist at Capital Economics, a consultancy.
The global economy experiences a growth shock, risky assets sell off, investors anticipate that central banks will respond by loosening policy, market interest rates and bond yields fall, and this helps to put a floor under risky assets.
Neil Shearing, Capital Economics
“Investors should consider shoring up their near term defences,” said Luca Paolini, chief strategist at Pictet Asset Management. The Swiss wealth manager, which is neutral on equities, has increased its weightings in more defensive assets and turned neutral — from underweight — on bonds.
“Tactically, our defensive hedges include gold, Swiss francs — which usually appreciate whenever economic conditions deteriorate — and US Treasuries, additional insurance against the fallout from coronavirus,” Mr Paolini said.Asian shares dropped, although mainland Chinese stock markets were a bright spot as the country officially returned to work following a shutdown caused by the spread of the coronavirus. Still, many businesses extended holidays or work-from-home arrangements in their efforts to contain the deadly outbreak. The CSI 300 index in Shanghai closed 0.4 per cent higher.
Irish stocks came under pressure after Sinn Féin pushed past the country’s two establishment parties to win the highest share of the vote in the weekend’s general election.Shares in Ireland’s biggest banks, AIB and Bank of Ireland, dropped more than 5 per cent in Monday afternoon trade, leaving them among the worst performers of major listed European companies. The ISEQ index of Irish shares was down 1.2 per cent.
The traditional largest parties — centrist Fianna Fáil and centre-right Fine Gael — have previously ruled out a coalition with Sinn Féin, which was the political wing of the IRA during its violent campaign to force Britain from Northern Ireland that ended after the 1998 Good Friday Agreement.
But Sinn Féin’s leader Mary Lou McDonald said her party now had a “very substantial mandate” to play a role in the next Irish government. The party did not run enough candidates to win an outright majority of seats, but it had won 34 as counting continued on Monday afternoon, up from 23 after the previous election.
Fianna Fáil are on track to win the largest number of seats under Ireland’s proportional representation voting system. Micheál Martin, party leader, on Sunday stopped short of ruling out the prospect of a coalition with Sinn Féin.
The yield, which move inversely to prices, on Irish 10-year bonds fell 2 basis points to minus 0.124 per cent as investors moved into government debt.
The US dollar edged lower having risen more than 1 per cent last week, while US government bond yields were stable.