Bargain hunting lifts European shares; COVID-19 keeps dollar in demandBargain hunting lifts European shares; COVID-19 keeps dollar in demand

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The German share price index DAX graph at the stock exchange in Frankfurt

By Elizabeth Howcroft

LONDON (Reuters) – European shares opened higher on Monday after strong economic data from China helped lift sentiment in the Asian session, but the dollar was in demand with investors cautious over the second wave of COVID-19 and upcoming U.S. elections.

Equities fell sharply last week and the dollar surged to two-month highs as a resurgence of coronavirus infections in Europe and caution ahead of the U.S. presidential elections in November caused investors to re-evaluate their expectations for a global economic recovery.

But on Monday, shares were firmly in the black, with the Stoxx 600 up 1.6%, London’s FTSE 100 up 1.5% and Germany’s DAX up 2.2% at 0724 GMT.

After a tech-driven rally in Wall Street late on Friday, Asian shares gained, with Chinese shares boosted by data over the weekend showing China’s industrial firms grew for the fourth consecutive month in August.

In Australia, lockdown restrictions in Victoria started to be unwound as daily new coronavirus infections fell to single digits for the first time in more than three months.

The MSCI world equity index, which tracks shares in 49 countries, was up 0.5% at 0729 GMT, while MSCI’s main European Index was up 1.8%.

David Madden, market analyst at CMC Markets UK, said that investors were bargain hunting after key share indexes hit multi-month lows last week.

“The fears of a second wave are still persistent but we’re kind of in a lull at the moment,” he said.

“We’ve already had the fear which drove stocks down then that news has sunk in – people haven’t forgotten about it but for the time being it’s less important.”

The STOXX 600’s banking stock index was up 4.2%, after hitting a fresh all-time low on Friday.

Currency markets indicated increased risk appetite, as the riskier Australian dollar, New Zealand dollar, Swedish crown and Norwegian crown were all up against the U.S. dollar, recovering slightly from last week’s lows.

But the dollar was still in demand, with the dollar index holding near 2-month highs at 94.529 at 0748 GMT.

The benchmark 10-year German Bund yield was steady at -0.52%.

Investors remain broadly cautious in light of rising new COVID-19 infections in Europe, which pose the risk of further restrictions on activity.

The World Health Organization said on Friday that it is worried about rising infections and hospitalisations ahead of the Northern Hemisphere’s flu season.

Oil prices fell as the increasing virus cases damaged hopes for a smooth recovery in fuel demand, with Brent on track for its first monthly fall in six months.

Gold prices slipped, with spot gold down 0.2% at $1,856.64 per ounce by 0803 GMT.

“Rather than marking the start of a further decline, we think gold’s fall is a temporary correction,” UBS wrote in a note to clients.

“We think investors should use the drop in gold prices to add exposure to it. By year-end 2020, we see the precious metal again reaching the USD 2,000/oz mark,” the note said.

Investors are turning more cautious ahead of the Nov. 3 U.S. elections. The first debate between presidential candidates on Tuesday.

President Donald Trump paid just $750 in federal income taxes in both 2016 and 2017, the New York Times reported on Sunday, citing tax-return data. Trump dismissed the report as “fake news”.

Global manufacturing PMIs on Thursday and U.S. jobs data on Friday will also be in focus this week.

(Reporting by Elizabeth Howcroft; Editing by Nick Macfie)