Mixed global markets on fears Delta variant could derail economic recovery
‘I fear the equity selling isn’t over yet, and if I am right, Europe will be the worst place to be given the index is value dominated – and thus very cyclical’
London/Hong Kong — European shares bounced back from their worst day of the year on Tuesday, but German bond yields slipped to fresh five-month lows as a reminder that investors remained worried the spread of the Delta coronavirus variant could derail the economic recovery.
Europe’s Stoxx 600 added 1%, boosted by a clutch of positive corporate earnings and production updates from miners, while in the US e-mini futures for the S&P 500 index were up 0.6%.
The positive moves followed more selling in Asia, with MSCI's gauge of Asia Pacific stocks outside Japan falling 0.7% and Japan's Nikkei 225 hitting a six-month low, down nearly 1%.
China deleveraging risks hurt property stocks and the broader market for a second day, causing a plunge in shares of heavily indebted developer China Evergrande Group. The Hang Seng index dropped 0.8% while China’s blue chip CSI300 Index was 0.1% lower.
MSCI's broadest gauge of global shares was 0.5% lower, extending its longest-losing streak in nearly 18 months.
"The reality is that this price action has become somewhat self-fulfilling as the myopic investor sentiment and positioning are forced to re-assess," said James Athey, investment director at Aberdeen Standard Investments.
"I fear the equity selling isn't over yet, and if I am right, Europe will be the worst place to be given the index is value dominated – and thus very cyclical."
Riskier assets globally have come under pressure recently as many countries struggle to contain the outbreak of the fast-spreading Delta virus variant, raising fears that further lockdowns and other restrictions could upend the worldwide economic recovery.
Stocks on Wall Street fell as much as 2% on Monday, with the Dow posting its worst day in nine months as Covid-19 deaths increased in the US.
In a separate gauge of investor risk appetite, bitcoin fell below $30,000 for the first time since June 22.
"Despite the vaccine rollout, markets do not appear to be learning to live with Covid-19," ANZ analysts wrote in a note to clients.
"Sentiment appears to have shifted, at least for the moment, to a persuasion that growth and earnings expectations may be overdone," they said, noting that risk-averse investors were bailing out of commodities.
In a sign of lingering fears of the spread of the Delta variant, the Australian dollar/Swiss franc cross, a favourite proxy in currency markets for economic recovery bets, fell to its lowest level since December 2020 at Sf0.6714, according to Refinitiv data.
Against a basket of its rivals, the US dollar strengthened widely on Tuesday and was close to an early-April high of 93.041 hit in the previous session.
US yields turned higher following Monday's searing rally. The 10-year yield rose to 1.217% from a close of 1.181%, a level last seen in February.
However, while the US yield curve steepened slightly, the spread between the US 10-year and two-year yield remained near February lows, signalling investor doubts about the growth outlook.
In Europe, Germany's 10-year yield, the benchmark for the bloc, briefly fell to -0.403%, breaching a new lowest level since February and was down around one basis point to -0.398%, as of 7.33am GMT.
Oil prices stabilised after slumping about 7% in the previous session due to worries about future demand and after an Opec+ agreement to increase supply.
Brent crude gained 0.7% to $69.11 a barrel. The US crude contract for August delivery, which expires later on Tuesday, was up 0.9% at $66.64 a barrel.
Spot gold was flat at $1,812.16/oz after hitting a one-week low of $1,794.06 in the previous session.
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