On Friday, markets took a cautious break in the face of growing concerns over the pace of the economic recovery following COVID-19. World stocks stabilized, Treasury yields jumped, and the dollar stayed solid. Markets have been roiled this week as an increase in instances of the Delta coronavirus strain has stifled risk appetite and prompted a flight to safety, with some speculating that the post-pandemic reflation trade had halted and secular stagnation was once again on the cards.
“Many appear to be gradually realising that vaccination programs 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.”
Many major central banks’ still-extremely-easy monetary policies are weighing against this, while some fear that this may be curbed if inflation rises and policymakers’ excesses are curtailed.
“Sentiment and positional shifts can have a big impact in both ways.
However, data will be crucial in the end “BlueBay Asset Management’s chief investment officer, Mark Dowding, stated.
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 MSCI World index rose 0.1 percent as advances in key European bourses offset overnight weakness in Asia, but it remained on track for a weekly loss of roughly 1%.
The STOXX Europe 600 index was up 1%, recouping more than 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. According to analysts, a series of events sparked the shift in mood.
Fears that central banks will stifle economic recovery by tightening policies to combat inflation, as well as the rapid spread of the Delta strain and poor vaccination rates, have cast a pall over the situation.
Stay-at-home orders were implemented in Sydney, Australia, to stop the spread of the illness. New restrictions were also imposed by Vietnam. South Asia has seen a record number of deaths. 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 a dramatic drop earlier in the week, 10-year Treasury rates were up approximately 4.5 basis points to 1.336 percent on Friday, up from a four-and-a-half-month low of 1.25 percent on Thursday. The number of Americans filing new unemployment claims increased on Thursday, adding to concerns that the job market’s recovery from the epidemic is still turbulent. 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 was up 0.3 percent to 110.10 per dollar, on track for its highest weekly gain since November. The euro fell to $1.1837 USD. The dollar index, which measures the value of the dollar against a basket of other major currencies, is again holding about flat, down 0.1 percent at 92.284. 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, and Timothy Heritage edited)/n
