* 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
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, Paris and Frankfurt were down around 1% in early trading as the bumpier conditions shifted investors back to the dollar and the region’s government bonds.
Tokyo, Hong Kong and Seoul 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.
“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.
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 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 , the euro slipped back under $1.13 and all the way to $1.1275, while the Aussie dollar dropped 0.5% after headlines of Melbourne’s lockdown measures broke..
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 lost nearly 1% to $42.69 per barrel, while U.S. West Texas Intermediate crude 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.
Reporting by Marc Jones; Editing by Catherine Evans