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- European shares eased, but would still likely post their biggest monthly increase on record in November, buoyed by optimism over the economic outlook from the rollout of a COVID-19 vaccine.
- Market-based signs of investor nervousness, including falling government bond yields and a rise in volatility, pointed to a degree of caution over the coming weeks.
- "Even with so many very positive signs on vaccines, it will be months before these facilitate a return to greater activity levels," ADM Investor Services chief global economist Marc Ostwald said.
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European shares retreated on Monday, but the region's benchmark index was still set for its biggest ever monthly rise, as optimism over a vaccine has helped lift some of the most battered sectors in one of the virus hotspots.
The Stoxx 600 fell by 0.1% in early trading, under pressure from profit-taking in some of the "real-economy" sectors, such as energy, banks and retail. The index has risen by 15% in November, the largest one-month increase since its inception in 1998.
The United States has the highest number of deaths and infections worldwide, but, as a region, Europe is not far behind, with more than a quarter of a million fatalities and a number of major economies have been hammered by tough lockdowns and restrictions on movement.
The FTSE 100 was one of the better performing indices, up around 0.3% on the day, although caution prevailed over UK assets ahead of an expected call from Conservative Prime Minister Boris Johnson to the head of the European Commission, Ursula von der Leyen, as the two sides enter the final weeks of hashing out a post-Brexit trade deal.
The pound rose against most major currencies, but traded slightly weaker against the euro around 89.92 pence.
"Reports suggest a Brexit deal may be closer, where the thorny issue of fishing gets resolved with a transition period. If announced this week, that might be enough to send EUR/GBP back to 88.60," ING strategists said in a note.
Futures on the S&P 500, the Dow Jones and the Nasdaq 100 fell between 0.1% and 0.6%, suggesting the major indices could ease at the start of regular trade later on. The US market was closed on Thursday and operated under reduced hours on Friday for the Thanksgiving holiday.
Asian benchmarks encountered some profit-taking overnight, leaving the Hang Seng down 2.1%, the Shanghai Composite down 0.2% and the broader Tokyo TOPIX down 1.8%, in spite of official Chinese data showing factory activity boomed at its strongest pace in three years this month.
Reflecting some of the caution in the market, government bond yields pushed lower, while two market-based measures of investor anxiety rose sharply. Yields on the benchmark 10-year US Treasury note eased by 1 basis point to 0.841%. In spite of all the confidence in the prompt rollout of an effective COVID-19 vaccine, Treasuries have fallen by 3 basis points this month, marking their largest decline since July.
German 10-year yields nudged down by 1 basis point to -0.583%, hovering around their lowest since November 9, when US drugmaker Pfizer announced the results of a successful vaccine trial, triggering a worldwide rush into risk assets and more down-trodden sectors of the stock market.
"For all that it is not uplifting, the world is coming to terms with the fact that this year's 'holiday season' will be not be very festive, and that even with so many very positive signs on vaccines, it will be months before these facilitate a return to greater activity levels," ADM Investor Services chief global economist Marc Ostwald said.
"In the meantime, the battle to constrain and reduce infection rates continues, above all in Europe & North America, but also increasingly in parts of Asia, and as such it is self-evident that the economic and social scars of the pandemic will be deeper than many had hoped or expected, though how deep remains unclear," he added.
Investor nervousness, as reflected by options volatility, picked up. Volatility has collapsed this month, as confidence in the outlook for the global economy has grown. But on Monday, two measures of volatility jumped.
The VDAX-New, which measures the volatility of options on the DAX, rose by almost 8%, in its largest one-day increase since late October, while the more widely traded VIX rose by 7.2%.
The oil price, which has gained 25% in value this month, fell on Monday. The world's largest exporters meet this week to discuss an agreement on production curtailments and, as yet, it is not clear if they will agree to maintain their existing cuts to support the crude price going into 2021, according to Reuters.
OPEC+, made up of the Organization of the Petroleum Exporting Countries and several rival producers, have agreed to cut their crude output by a joint 7.7 million barrels per day until the end of this year.
"Oil has been trading soft after OPEC+ members could not reach an agreement on output in 2021 during the first-round meeting at the weekend," Stephen Innes, chief global market strategist at Axi, said. "As things stand, the production cuts the group agreed on earlier this year will end in January," he added.
Brent crude futures fell 1.5% to $47.53 a barrel, while WTI crude futures fell 1.2% to $44.99 a barrel.
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