LONDON. — Risk-aversion ruled yesterday as a surge in worldwide coronavirus cases drove down bond yields and left stocks facing their longest losing streak since the pandemic first hit global markets 18 months ago.
Summer markets were suddenly stormy. Europe’s STOXX 600 saw its worst morning in two months and London’s FTSE fell over 2 percent as Britain’s “freedom day” when it lifted Covid-19 restrictions was overshadowed by its double-jabbed health minister contracting the virus.
Asia had seen Japan’s Nikkei and Hong Kong’s Hang Seng drop 1,3 percent overnight too. Cases hit an 11-month high at the weekend in Singapore. Thailand had its highest single-day increase since the pandemic began and Sydney’s construction workers were told to down tools after cases rose there as well.
Wall Street futures fell nearly 1 percent although it was good news for those holding safe-haven government bonds or the dollar, which climbed to a more than three-month high.
Natwest’s Global Head of Desk Strategy, John Briggs, said the chances of broader lockdowns being needed again were growing and also China’s economy was slowing, meaning a recent surge in commodity prices could be peaking although oil is now expensive enough to be a weight on many economies.
“Where all this comes out of the wash for me is that with this narrative gaining traction, it is clearly more bullish for the US dollar,” Briggs said.
He said that if Covid-19 cases rise again, factors to consider included which countries have the highest vaccination rates, their appetite for social restrictions and their fiscal appetite.
“The US comes out on top of all these,” Briggs added. “We are in a period of renewed US exceptionalism … So all this is bullish for the USD.”
In Europe’s stock markets, Covid-19 angst saw travel and leisure stocks fall to their lowest level of the year. Shares of cruiseship operator Carnival, airlines easyJet and British Airways-owner IAG, and the UK’s Restaurant Group and Cineworld cinema chain all fell between 5 percent and 6 percent.
It wasn’t just Covid-19 crushing the mood either. China’s supersized tech trio Baidu, Alibaba and Tencent had sunk 2,5percent -3 percent overnight after a Shanghai court at the weekend posted a list of “typical unfair competition cases”.
Oil prices sank more than 2 percent after the OPEC group of producing nations overcame a recent spat and agreed to boost output in a hastily arranged meeting on Sunday. Brent crude was down $1,70 at a five-week low of US$71,85 a barrel.
Global economic growth is beginning to show signs of fatigue as many countries, particularly in Asia, struggle to curb the highly contagious Delta variant of the novel coronavirus and have been forced into some form of lockdown.
Investors are also worried about the spectre of elevated inflation, which the market has long feared. — Reuters.