LONDON - World stocks’ return to record highs looked set to be delayed for another day on Thursday as a stalemate in US stimulus talks, trade war angst in both Europe and China, and the COVID-19 pandemic all held back the bulls.

A leap from Japan’s Nikkei in Asia after Wall Street’s S&P 500 had finished just points off its record high had bolstered hopes of a breakthrough, but Europe had other ideas.

The STOXX 600 suffered its first fall in five days after Washington said it would maintain 15 percent tariffs on planes and 25 percent tariffs on other European goods, and as an eye-watering 1.1 billion euro loss at tourism giant TUI sank its shares 4 percent. Wall Street also looked set for a subdued open.

“Although people think things are getting better, there is still so much uncertainty,” said Louise Dudley, a portfolio manager at Federated Hermes in London.

The global rally has seen MSCI’s world index rise 50 percent since its March lows to stand just 1.4 percent off its all-time high. Dudley said it still had room to run, especially with companies cutting costs and working-from-home arrangements helping high-flying tech and internet stocks.

In the currency and bond markets, normal service resumed as faltering hopes for a compromise between Republicans and Democrats over additional stimulus for the US economy pushed the dollar down 0.3 percent against most of its peers. 

A selloff in benchmark government bond markets also eased, as investors digested the biggest ever 10-year US debt sale, and some surprisingly robust US inflation figures.

Benchmark German 10-year government yields were down 1.2 basis points at -0.45 percent DE10YT=RR. Consumer prices there, harmonised for comparability with other European countries, were confirmed down 0.5 percent in July from the previous month.

Traders will be watching for the US initial jobless claims later in the day, with economists polled by Reuters expecting a fall.

“The volatility of yields is just a reality that we have to deal with at the moment.” said Brian Jacobsen of Wells Fargo Asset Management.

Central banks like the US Federal Reserve are “not going to take the punch bowl away this time”, he said. “In fact, they are going to wait until the party is very much over until they take it away.”

Japan Jump

In Asia, Japanese stocks were the main mover, soaring 1.8 percent to a six-month peak on gains from chip firms.

Markets are still eagerly awaiting a breakthrough in wrangling over the next US stimulus package, though with little sign of progress the euro poked back above US$1.18 and Turkey's troubled lira TRY= was able to grab some respite.

The Australian dollar nudged ahead too after better-than-expected jobs figures - though the fact that unemployment topped a million for the first time ever capped gains.

Australia was also the outlier in regional equity markets, with selling of communications giant Telstra after a profit plunge dragging on the index .

Korea's Kospi led gains in other markets outside Japan, rising 0.7 percent to a two-year high, while in commodities, oil mostly clung to solid gains made overnight when a drop in US crude inventories spurred hopes that fuel demand is recovering.

Brent crude futures were last 0.2 percent softer at US$45.33 a barrel which was roughly where it was before COVID-19 began to spread out of Asia, while US crude dipped by the same margin to US$42.60 a barrel.

“People are looking at the glass half full, and testing the waters,” said Bank of Singapore currency analyst Moh Siong Sim.