Global Markets: Dollar falls, European shares bounce back in 'relief rally'Global Markets: Dollar falls, European shares bounce back in 'relief rally'
The German share price index DAX graph at the stock exchange in Frankfurt

By Elizabeth Howcroft

LONDON (Reuters) – European shares rebounded on Monday and the dollar fell from two-month highs as market sentiment recovered briefly, although investors remain cautious about both the second wave of COVID-19 in many regions and the Nov. 3 U.S. presidential election.

Equities fell sharply last week and the dollar hit a two-month high as coronavirus infections surged again in Europe and as investors reassessed their expectations for a global economic recovery ahead of the U.S. vote.

But on Monday, shares were firmly in the black, with the Stoxx 600 up 2% <.STOXX>, London’s FTSE 100 up 1.5% <.FTSE> and Germany’s DAX up 2.8% <.GDAXI> at 1151 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.

The MSCI world equity index <.MIWD00000PUS>, which tracks shares in 49 countries, was up 0.7% at 1152 GMT, while MSCI’s main European Index <.MSER> was up 2.2%.

“We’re seeing a bit of a relief rally,” said Jonathan Bell, chief investment officer at Stanhope Capital. “Things got over-sold perhaps a little bit in the short term.”

“We saw quite a lot of exuberance in July and August with prices particularly of tech stocks rising and that then has come off a little bit recently,” he said.

Bell said that the move lower was unlikely to result in a rotation away from technology and growth stocks until there was a more significant driver such as a COVID-19 vaccine or signs of inflation picking up.

He said politics remains a key driver for investors ahead of the Nov. 3 U.S. vote pitting President Donald Trump against former vice-president Joe Biden.

The STOXX 600’s banking stock index was up 4.4%, after hitting a fresh all-time low on Friday <.SX7P>.

U.S. stock futures rose, with banking and travel firms’ shares rebounding.

Dow e-minis were up 1.3% at 1200 GMT, S&P 500 e-minis were up 1.4% and Nasdaq 100 e-minis were up 1.8%.

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, recouping some losses from the previous week.

The dollar index fell, erasing some of last week’s gains, down 0.4% on the day at 94.157 at 1154 GMT.

The euro was up 0.4% versus the dollar, at $1.1672.

The benchmark 10-year German Bund yield was up 2 basis points, at -0.509%.

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 the main crude benchmarks on track for their first monthly falls since April

Gold prices slipped, with spot gold down 0.3% at $1,864.98 per ounce by 1157 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.

The first debate between U.S. 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.

Graphic: 2020 asset performance

Graphic: World FX rates in 2020

(Reporting by Elizabeth Howcroft; Editing by Nick Macfie and Hugh Lawson)