GLOBAL MARKETS-Europe stalls after China's bull charge rumbles on

* 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 5-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
completely douse China's July hot streak.
London .FTSE , Paris .FCHI and Frankfurt .GDAXI were
down around 1% in early trading as the bumpier conditions
shifted investors back to the dollar =USD and the region's
government bonds. GVD/EUR /FRX
Tokyo .N225 , Hong Kong .HSI and Seoul .KS11 had all
lost ground in Asian trading, while Shanghai's high-flying
blue-chip index was sputtering by the close after adding to the
15% gains it has made over the last week. .SS
"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
chief strategist at Pictet Asset Management Luca Paolini.
He said corporate earnings prospects were clearly a concern.
The consensus is that profits globally will decline by about 20%
percent this year following the deepest recession in more than a
century, although Pictet is predicting 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 ECB will add an extra 1.1 trillion euros.
Analysts said signals from the Chinese government through a
state-sponsored journal on the importance of "fostering a
healthy bull market" published on Monday had helped the buying
recent binge in Chinese shares. The current China rally has echoes of the past, especially
during 2007 and in the buying spree that followed the crash in
2015 that 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 sharp rebound in U.S. services industry activity in June,
almost returning to pre-pandemic levels, also helped to whet
investors' risk appetite. DESTRUCTION
New coronavirus cases surged in several states, however,
forcing some restaurants and bars to close again in a setback to
the budding recovery that helped check gains in risk assets.
Lockdown measures were reimposed in Australia's second
biggest city Melbourne on Tuesday too, confining its residents
to all but essential travel for another six weeks.
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 small scale 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 under $1.13 and all the way to
$1.1275 EUR= , while the Aussie dollar dropped 0.5% after
headlines of Melbourne's lockdown measures broke. AUD=D4 .
Gold dipped slightly in metals, but was still a near an
eight-year peak at $1776 per ounce. Copper was a touch weaker in
London trading too, having hit a fresh five-month high as part
of the China charge in Asia.
Oil prices were also struggling in line with most commodity
markets. Brent crude LCOc1 lost nearly 1% to $42.69 per
barrel, while 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 reopenings
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.
"The potential for demand destruction as lockdown
reinstatement looks more likely are combining with concerns
about OPEC+ discipline to weigh on oil prices," said CMC
Markets's Chief Market Strategist Michael McCarthy in Sydney in
an email.

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