NEW YORK/LONDON – As markets took a cautious break amid fresh concerns about the pace of economic recovery from COVID-19, U.S. stocks climbed on Friday, mirroring advances in European equities, while Treasury yields increased and the currency held strong. Markets have been roiled this week as an increase in instances of the delta coronavirus type lowered risk appetite and spurred a flight to safety, with some speculating that the post-pandemic reflation trade had stopped and secular stagnation was once again on the table.
At the start of U.S. trade, the Dow Jones Industrial Average increased 324.99 points, or 0.94 percent, to 34,746.92.
The broad S&P 500 rose 21.33 points (0.49 percent) to 4,342.15, while the tech-heavy Nasdaq Composite rose 34.64 points (0.24 percent) to 14,594.42.
“There appears to be a gradual understanding for many that vaccination campaigns alone will not be enough to return economies to pre-COVID normalcy,” said Deutsche Bank analyst Jim Reid. “Cases at the global level are now ticking up again as the more virulent Delta strain spreads across the world.”
The ultra-easy monetary policy of several major central banks works against this, while some fear it may be reduced if inflation rises.
New bank loans increased more than expected in June, according to figures released on Friday by China. Broad credit growth also increased. In an effort to boost growth, China’s central bank announced a fresh reduction in the amount of cash banks must retain in reserve. The STOXX Europe 600 index was up 0.8 percent, recouping roughly half of the previous session’s loss, but it was still on track to lose for the second week in a row. MSCI’s broadest index of Asia-Pacific equities outside Japan fell to two-month lows overnight in Asia before recovering to trade down 0.1 percent. Stock futures in the United States were up 0.3 percent, indicating a higher opening on Wall Street. Low vaccination rates in some regions of the world, according to Federal Reserve Bank of San Francisco President Mary Daly, represent a threat to U.S. growth, according to the Financial Times.
After falling dramatically earlier in the week, 10-year Treasury rates rose 6.3 basis points to 1.351 percent on Friday, up from a four-and-a-half-month low of 1.25 percent on Thursday.
In Europe, safe-haven German Bund yields rose a smidgeon, but were still on track for their largest two-week loss since March 2020, as investors braced for a lengthier road to recovery.
The safe-haven yen rose 0.26 percent to US$110.0800, on track for its highest weekly gain since November. The euro was last trading at US$1.1864, up 0.19 percent. The dollar index, which measures the value of the dollar against a basket of other major currencies, is again holding about flat, down 0.2 percent at 92.213. In a note, Thomas Flury, Head of FX Strategies at UBS Global Wealth Management, wrote, “The most essential issue to address is the recent reduction in yields internationally, and what this downward trend means in terms of risk aversion and trade repositioning.” “So far, we believe markets are stuck in certain momentum trades that aren’t very persistent.” Gold, another safe-haven asset, was projected to increase for the third week in a row. It was last trading at $1,804 per ounce, up 0.1 percent. Oil prices rose again overnight as US inventories fell, but they are still on track for a weekly loss. Brent crude was trading at US$74.79 a barrel, up 67 cents. Crude oil in the United States gained 79 cents to US$73.73 per barrel. (Abhinav Ramnarayan, Swati Pandey, and Sujata Rao contributed additional reporting; Shri Navaratnam, Giles Elgood, Timothy Heritage, and William Maclean edited)/n
