LONDON (Reuters) – Risk aversion reigned on Monday as an increase in coronavirus cases around the world lowered bond yields and left stocks facing their longest streak of losses since the pandemic hit the world markets for the first time 18 months ago.
The summer markets are suddenly stormy. Europe’s STOXX 600 had its worst morning in two months and London’s FTSE fell more than 2% as Britain’s ‘freedom day’ when it lifted COVID restrictions was overshadowed by her double-bitten health minister who contracted the virus.
Asia also saw Japan’s Nikkei and Hong Kong’s Hang Seng drop 1.3% overnight. Cases hit an 11-month high this weekend in Singapore. Thailand saw its biggest single-day increase since the start of the pandemic and Sydney construction workers were urged to lower tools after cases there also increased.
Wall Street Futures Down Nearly 1% [.N] although it was good news for those who hold safe haven government bonds [GVD/EUR] or the dollar, which hit a high for more than three months. [/FRX]
Natwest’s global head of office strategy John Briggs said the chances of wider lockdowns being needed again were increasing and the Chinese economy was slowing, meaning that a recent surge in commodity prices could peak although oil is now expensive enough to be a drag on many economies.
“Where this all stands out for me is that with this narrative gaining traction, it’s clearly more bullish for the US dollar,” Briggs said.
He said if COVID-19 cases increased again, factors to consider included countries with the highest vaccination rates, their appetite for social restrictions and their appetite for taxation.
“The United States is leading all of this,” Briggs added. “We are in a period of renewed American exceptionalism … So this is all bullish for the USD.”
In European stock markets, COVID angst saw travel and leisure stocks plummet to their lowest level of the year. Shares of cruise operator Carnival, airlines easyJet and British Airways owner IAG, as well as UK group Restaurant Group and movie chain Cineworld all fell between 5% and 6%. [.EU]
It wasn’t just COVID that was crushing the mood, either. Oversized Chinese tech trio Baidu, Alibaba and Tencent fell 2.5% to 3% overnight after a Shanghai court over the weekend released a list of “typical cases of unfair competition.” [.SS]
Chart: Global number of new COVID-19 cases:
Oil prices fell more than 2% after the OPEC group of producing countries overcame a recent spat and agreed to increase production in a hastily-organized meeting on Sunday.[O/R]
Brent crude fell $ 1.70 to a five-week low at $ 71.85 a barrel. US crude fell a similar amount to $ 70.59 a barrel.
Global economic growth is starting to show signs of fatigue as many countries, particularly in Asia, struggle to curb the highly contagious Delta variant of the new coronavirus and have been forced into some form of lockdown.
Investors are also worried about the specter of high inflation, which the market has long feared.
Bank of America economists lowered their forecast for economic growth in the United States this year to 6.5%, from 7% previously, but maintained their forecast of 5.5% for next year.
“When it comes to inflation, the bad news is that it should stay high in the near term,” they said in a note, pointing to their latest proprietary inflation meter, which remains high.
“The good news is… we are probably near the peak, at least for the next few months, as base effects are less favorable and scarcity pressures shift from goods to services. “
In bond markets, the shift to safe havens allowed the recent decline in yields to continue. The German 10-year bond yield was at its lowest since late March at -0.369% ahead of an ECB meeting this week. US Treasury yields have slipped to 1.265% and have fallen for 11 of the last 15 trading sessions.
The forex market action pushed the dollar up 0.3% against a basket of major currencies to 92.976.
But it failed to gain ground against the Japanese yen – the dollar / yen currency pair traded below 110 yen per dollar at 109.85, leaving the yen up 0.2 % over the day.
The British pound hit a three-month low against the dollar at $ 1.3706 [GBP/] after his Minister of Health, Sajid Javid, tested positive for COVID-19. This forced Prime Minister Boris Johnson and Finance Minister Rishi Sunak to self-quarantine on Sunday.
“Despite rising vaccination rates, a return to pre-corona normality seems questionable,” wrote Ulrich Leuchtmann, head of currency and commodities research at Commerzbank, in a research note.
Additional reporting by Karin Strohecker; Editing by Timothy Heritage and Edmund Blair