LONDON – Europe’s stock markets spluttered on Thursday, and government bond yields sank, as the president of the Federal Reserve tempered taper talk and traders grappled with the sudden spike in COVID-19 Delta variant instances around the world. There was also a slew of Chinese data to analyze, including a slightly lower-than-expected second-quarter GDP reading, as well as Morgan Stanley results that above expectations and a drop in weekly U.S. unemployment claims.
China’s data was far from bad: average growth outpaced Q1, and retail sales and industrial output in June above expectations. However, it demonstrated that officials, who only last week injected 1 trillion yuan into the banking system, will keep things loose. Markets’ joy did not last long after Fed Chair Jerome Powell told Congress that there was no need to hasten the transition to tougher post-pandemic monetary policy. Though China’s bourses rose after the report, London, Paris, Frankfurt, and S&P 500 futures were all 0.3 percent to 1% lower ahead of U.S. trading. The main all-global indexes were also off their recent record highs, probably moderated by mounting COVID-19 cases around the world and indicators that the post-pandemic rebound in corporation earnings had peaked.
On Wednesday, the World Health Organization’s (WHO) COVID-19 dashboard revealed the first weekly increase in global mortality from the virus in ten weeks, as well as a 5.6% increase in daily case numbers.
“The market is afraid that the Delta variation may take hold of multiple economies,” said Justin Onuekwusi, portfolio manager at Legal & General Investment Management. “We’re almost back to the ‘bond yields lower, tech doing well’ scenario.”
Amazon and Google are up 6-8 percent this month, while Alibaba and Tencent, two of China’s largest internet businesses, are up more than 12% since China’s central bank announced a helpful policy change for the first time in nearly a year on Friday.
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According to the US Labor Department’s weekly jobless report for the week ending July 10, the number of Americans filing new claims for unemployment benefits decreased.
Traders were also anticipating the release of the Philadelphia Fed’s closely watched business sentiment survey, as well as if Powell’s second day of congressional testimony, which begins at 1330 GMT (0930 ET), will provide any additional clues.
On Wednesday, Powell acknowledged the US economy was “still a ways off” from the levels the Fed wants to see before reducing its monetary stimulus.
He also expressed confidence that the recent spike in prices related with the country’s reopening following the virus will subside.
His remarks come as data released this week revealed that consumer prices rose at the fastest rate in 13 years in June.
Globally, government bond yields, which indicate borrowing costs and move in the opposite direction of price, fell. The 10-year Treasury yield fell to 1.3257 percent on Thursday after peaking at 1.423 percent on Wednesday, while Japan’s 10-year yields fell to their lowest level of the year. The actual yield on inflation-protected US bonds, sometimes known as the bond yield, fell to minus 1.027 percent, its lowest level since February. Germany’s bunds hit an all-time low of -0.342 percent. While Powell’s remarks sparked bond buying, fears over inflation haven’t gone away. “I was somewhat surprised by the (US) CPI data,” said Nobuyasu Atago, chief economist at Ichiyoshi Securities. “People believe that rising used automobile prices are the main cause, but this is not the case. New cars, technological items for the home, and services are all on the rise. And history shows that when energy prices rise, the effect lasts for around two years.” Powell’s dovish posture did, however, cause a modest dent in the dollar’s value in the currency markets, but it didn’t stay long. After hitting a three-month low of US$1.1772, the euro fell back to US$1.1810 from US$1.1845. After a 0.6 percent drop on Wednesday, the dollar was trading at 109.73 yen. After hitting a three-week high of 6.4508 overnight, the Chinese yuan fell to 6.4628 per dollar in Asia. On Wednesday, gold hit a one-month high of US$1,829.8 per ounce, before settling at US$1,827.9. Oil prices fell, however, as major global oil producers reached an agreement on supply and after statistics from the United States indicated that demand had slowed slightly in the previous week. Brent crude prices fell 1.3 percent to US$73.76 a barrel. In European trading, US crude futures sank 3% from this month’s 7-year high to little under US$72 per barrel, while London-listed oil majors Royal Dutch Shell and BP slumped 3%. (One US dollar equals 6.4693 Chinese yuan) (With contributions from Sujata Rao and Angus MacSwan and Alex Richardson; editing by Angus MacSwan and Alex Richardson)/n
