* European stocks fall 1%, world shares set to end winning
streak
* A$ falls as Melbourne reintroduces some lockdown measures
* Commodities weaker overall, but copper at five-month high
* U.S. dollar regains traction in FX markets
By Marc Jones
LONDON, July 7 (Reuters) - A five-day charge by world stocks
fizzled on Tuesday as caution about renewed coronavirus
lockdowns took hold again, though it was not enough to douse
China's July hot streak.
London .FTSE , Paris .FCHI and Frankfurt .GDAXI were
down around 1% by early afternoon .EU and Wall Street looked
set for a drop, too ESc1 , as investors shifted back into the
dollar =USD and government bonds. GVD/EUR /FRX
Tokyo .N225 , Hong Kong .HSI and Seoul .KS11 all lost
ground in Asian trading. Shanghai's blue-chip index was
sputtering by the close after adding to its 15% gains over the
past week. .SS
New coronavirus cases have surged in several U.S. states,
forcing some restaurants and bars to close again, in a setback
to the budding recovery that had been propelling risk assets.
Lockdown measures were also reimposed in Melbourne,
Australia, confining its nearly 5 million residents to all but
essential travel for another six weeks.
The move was announced just before the state border between
Victoria, of which Melbourne is the capital, and New South
Wales, which contains Sydney, is scheduled to close.
"Just when many parts of the world looked to have got to
grips with the coronavirus pandemic, many jurisdictions
re-imposed lockdowns to contain a surge in new cases," said Luca
Paolini, chief strategist at Pictet Asset Management.
Corporate earnings are expected to fall by about 20% percent
this year following the deepest recession in more than a
century. Pictet expects a 30% to 40% slump.
"But that does not mean equity and corporate bond markets
are due a sharp fall," Paolini said, predicting the U.S. Federal
Reserve will inject another $1.3 trillion of stimulus this year
and the European Central Bank will add another 1.1 trillion
euros ($1.24 trillion).
The euro zone economy will drop into a deeper recession this
year than previously thought and take longer to rebound, the
European Commission forecast on Tuesday. France, Italy and Spain
are struggling the most.
Expectations are for a record 8.7% slump, then a 6.1%
recovery in 2021. In early May, the commission had forecast a
2020 downturn of 7.7% and a 2021 rebound of 6.3%.
Analysts said signals from the Chinese government through a
state-sponsored journal on "fostering a healthy bull market",
published on Monday, had helped the buying binge in Chinese
shares. The current China rally has echoes of the past, especially
during 2007 and in 2015, which was largely driven by Chinese
retail investors.
"Shades of John F. Kennedy's 'Ask not what your country can
do for you' inauguration speech here and as close as you might
get to a Chinese government 'put' as anything the Fed has done
to date vis-à-vis the U.S. stock (and credit) markets," said Ray
Attrill, head of FX strategy at NAB, in a research note.
A rebound in U.S. services in June, almost returning to
pre-pandemic levels, had also helped to whet investors' risk
appetite. TIMES
In the currency market, the Chinese yuan edged to its
highest levels in nearly four months. The renminbi rose 0.1% to
7.0115 per dollar CNY=CFXS though it was a small-scale move
compared to Monday's near 1% jump.
"The yuan is supported by the risk-on mood in the Chinese
share market despite lingering uncertainties over the U.S.-China
relations and an anticipated slow pace of recovery," said Ei
Kaku, senior strategist at Nomura Securities.
Other major currencies were struggling as the dollar
regained traction. The yen was flat at 107.41 to the dollar
JPY= , the euro slipped back to $1.1275 EUR= and the Aussie
dollar dropped 0.5% after headlines of Melbourne's lockdown.
AUD=D4 .
Gold dipped but was still near an eight-year peak at $1,776
per ounce. Copper was weaker in London trading, having hit a
five-month high as part of the China charge in Asia. MET/L
Oil prices were also struggling. Brent crude LCOc1 lost
nearly 1% to $42.69 per barrel and U.S. West Texas Intermediate
crude CLc1 fell to $40.24.
With 16 U.S. states reporting record increases in new
COVID-19 case in the first five days of July, according to a
Reuters tally, there is renewed concern about demand for fuel in
the world's biggest oil-consuming country.
Florida is reintroducing some limits on economic re-openings
to grapple with rising cases. California and Texas, two of the
most populous and economically crucial U.S. states, are also
reporting high infection rates.
"There are a couple of things that we are seeing, and some
of them are troubling and might suggest that the trajectory of
this recovery is going to be a bit bumpier than it might
otherwise," Atlanta Federal Reserve Bank President Raphael
Bostic told the Financial Times.
The U.S. death toll from the coronavirus has now topped
130,000, Reuters calculations show.
($1 = 0.8857 euros)
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
ChiNext powers ahead https://tmsnrt.rs/2V9olqm
World's biggest stock markets since start of 2020 https://tmsnrt.rs/38wlrSj
Central banks' balance sheets to the rescue https://tmsnrt.rs/2VvsWUh
Coronavirus and financial markets https://tmsnrt.rs/3iDGMOh
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>