Picture: 123RF/DANIIL PESHKOV
Picture: 123RF/DANIIL PESHKOV

London — Risk-aversion ruled on Monday as a surge in worldwide coronavirus cases pushed down bond yields and left stocks facing their longest losing streak since the pandemic first hit global markets 18 months ago.

The Stoxx 600 slid 1.4% and London's FTSE fell 1.3% as England scrapped Covid-19 restrictions even though over 48,000 new cases were reported in Britain on Sunday. Britain's health minister has also tested positive for the virus.

Asia had seen Japan's Nikkei and Hong Kong’s Hang Seng drop 1.3% 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 were down 0.5% although it was good news for those holding safe-haven government bonds or the dollar, which climbed to a more than 3-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 dollar,” Briggs said.

He said that if Covid-19 cases rise again, factors to consider include which countries have the highest vaccination rates, what their appetite for social restrictions is and also what their fiscal appetite is.

“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.”

China's supersized tech trio Baidu, Alibaba and Tencent sank 3% or more after a Shanghai court at the weekend posted a list of “typical unfair competition cases” involving the companies.

Permanently changed?

Oil prices sank more than 2% 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 $71.85 a barrel. US crude fell a similar amount to $70.59 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.

Economists at Bank of America downgraded their forecast for US economic growth this year to 6.5%, from 7% previously, but maintained their 5.5% forecast for next year.

“As for inflation, the bad news is it's likely to remain elevated near term,” they said in a note, pointing to their latest proprietary inflation meter, which remains high.

“The good news is ... we are likely near the peak, at least for the next few months, as base effects are less favourable and shortage pressures rotate away from goods towards services.”

In bond markets, the move to safe-haven assets meant the recent fall in yields continued. Germany’s 10-year bond yield was at its lowest since late March at -0.369% ahead of an ECB meeting this week. US treasury yields slipped to 1.265% and have fallen for 11 of the last 15 trading sessions.

Action in the currency market lifted the dollar 0.2% against a basket of major currencies to 92.734.

But it failed to make ground against the yen — the dollar/yen currency pair traded below the ¥110.$ mark at ¥109.85, leaving the yen 0.2% higher on the day.

Britain’s sterling hit a three-month low against the dollar of $1.3712. After health minister Sajid Javid tested positive for Covid-19, Prime Minister Boris Johnson and finance minister Rishi Sunak went into quarantine.

“Despite rising vaccination rates, a return to pre-corona normality seems questionable,” Ulrich Leuchtmann, head of forex and commodity research at Commerzbank, wrote in a research note.

Reuters

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