Global markets shaken by fears over Delta variant

The threat of the Delta coronavirus variant hit global stock markets on Monday, giving European stock exchanges their worst session of the year and pushing US stocks down more than 2%.

Commodity prices have also fallen as investors head to safe-haven government bonds.

The region-wide Stoxx Europe 600 fell 2.3% in its biggest one-day price drop in 2021, with London’s FTSE 100 falling by the same amount.

Across the Atlantic, the S&P 500 index lost more than 2% before moderating slightly in afternoon trading to a loss of 1.9%. The tech-focused Nasdaq Composite fell 1.2 percent. In commodities, Brent crude, the international benchmark for oil, fell 6.9% to $ 68.55 per barrel.

The yield on the 10-year US Treasury bill – a benchmark for assets around the world – fell 0.10 percentage points to 1.19%, its lowest level since mid-February. German 10-year Bund yields fell to minus 0.39% and UK 10-year gilts fell to 0.56%, both from five-month lows.

Government bonds have been rallying for weeks as acute inflation concerns this year began to fade. But Monday’s moves mark a significant acceleration in the decline in yields and a change in tone as bond gains have been accompanied by a sell off in stocks.

“It is the market awareness that we are moving from a clear V-shaped recovery to something much more uncertain,” said Mohammed Kazmi, portfolio manager at Union Bancaire Privée. “The hope was that the vaccines would provide us with the end of the game. Now investors are watching the UK and there is a bit of fear that such an aggressive reopening when cases are still so high. “

The pullback in equities, which came after months of steady gains in markets around the world, also reflected concerns that economic growth generated by reopening industries after last year’s shutdowns could peak around the same time. where inflation is increasing in Europe and the United States.

“Valuations and sentiment have all reached extreme growth highs,” said Ewout van Schaick, head of multi-asset investments at NN Investment Partners. “Now, of course, the resurgence of the virus is causing uncertainty about economic progress in the months to come.”

New York state on Saturday recorded more than 1,000 cases of Covid-19 in one day for the first time since mid-May, as authorities in countries like Australia and Vietnam battled the increase in infections. Singapore has tightened social distancing restrictions and preparations for the Tokyo Olympics have been delayed by a coronavirus outbreak.

England lifted most coronavirus restrictions on Monday as more than half a million people, including Prime Minister Boris Johnson, were ordered to self-isolate after coming into contact with those infected .

“Growing apprehension surrounding the global rebound. . . contributed to the T-bill bid which we believe has ample scope to extend, ”said Ian Lyngen, head of US rate strategy at BMO Capital Markets.

The British pound fell 0.7% against the dollar to $ 1.3673, its lowest level since late March. The dollar index, which tracks the progress of the greenback against major currencies, rose 0.2%.

Economists expect the US economy to grow at an annualized rate of 9 percent in the second quarter of the year, but moderate thereafter. New data is expected at the end of this month.

Consumer prices in the United States rose 5.4% in June, year-over-year, following pandemic supply chain bottlenecks and billions of dollars of monetary and fiscal stimulus. Inflation also exceeded the Bank of England’s target last month.

The sharp drop in Brent crude stumbled widespread bets on further gains, as concerns over economic growth compounded earlier falls caused by Opec and its allies in a deal to increase production to counteract rising prices.

Opec + agreed on Sunday to increase production by 400,000 barrels per day each month until 2022, although traders said the amount had been widely anticipated by the market.

Saudi Arabia and the United Arab Emirates overcame differences in the way production targets are calculated by agreeing that the major producers in the group would see baseline production levels revised upwards, although it is unlikely. that this adds additional short-term oil supplies.

Some market players, however, believe that Opec + is overly optimistic about the supply and demand balances, with enormous uncertainty about the appearance of a recovery in demand after the pandemic.

Facts Global Energy analysts said the group had set itself “a very optimistic production path until next year.”

Three-month copper futures, a barometer of likely economic growth, fell 1.4% to $ 9,311 per tonne.

Additional reporting by David Sheppard in London

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