Markets

Global share staunch sell-off but investors worry about Delta spread

Japan’s Nikkei ends at six-month low amid rising Covid-19 cases

Photograph: iStock

Tue Jul 20 2021 - 13:45

Global shares staunched a sell-off on Tuesday, but US Treasury and German bond yields slipped to fresh five-month lows as a reminder that investors remained worried the spread of the Delta coronavirus variant could derail the economic recovery.

After their worst sell-off this year on Monday, Europe's Stoxx 600 added 0.2 per cent, down from highs earlier in the session due to positive corporate earnings and production updates from miners. In the United States, e-mini futures for the S&P 500 index were up 0.4 per cent.

The positive moves followed more selling in Asia, with MSCI's gauge of Asia Pacific stocks outside Japan falling 0.6 per cent and Japan's Nikkei 225 hitting a six-month low, down nearly 1 per cent.

China deleveraging risks hurt property stocks and the broader market for a second day, causing a plunge in shares of heavily indebted developer China Evergrande Group. The Hang Seng Index dropped 0.8 per cent while China’s blue chip CSI300 Index was 0.1 per cent lower.

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MSCI’s broadest gauge of global shares was 0.2 per cent lower, extending its longest losing streak in nearly 18 months.

“The reality is that this price action has become somewhat self-fulfilling as the myopic investor sentiment and positioning are forced to re-assess,” said James Athey, investment director at Aberdeen Standard Investments.

“I fear the equity selling isn’t over yet, and if I am right, Europe will be the worst place to be, given the index is value dominated - and thus very cyclical.”

Riskier assets globally have come under pressure recently as many countries struggle to contain the outbreak of the fast-spreading Delta virus variant, raising fears that further lockdowns and other restrictions could upend the worldwide economic recovery.

Stocks on Wall Street fell as much as 2 per cent on Monday, with the Dow posting its worst day in nine months as Covid-19 deaths increased in the United States.

In a separate gauge of investor risk appetite, bitcoin fell below $30,000 for the first time since June 22.

“The market was too quick in January-March to remove Covid from the equation, to look at the very short term implications of reopening and think inflation would be explosive. They didn’t want to focus on the longer term implications,” said Ludovic Colin, senior portfolio manager at Vontobel Asset Management.

In a sign of lingering fears of the spread of the Delta variant, the Aussie dollar/Swiss franc cross, a favourite proxy in currency markets for economic recovery bets, fell to its lowest level since December 2020 at 0.6714 francs, according to Refinitiv data.

Against a basket of its rivals, the U.S. dollar strengthened widely on Tuesday and was close to an early-April high of 93.041 hit in the previous session.

Wall Street’s main indexes were set to open higher on Tuesday, as economically sensitive stocks rebounded following a sharp selloff in the previous session, while shares of IBM jumped on strong second-quarter results.

Shares of International Business Machines Corp gained 3.3 per cent in premarket trading as brokerages raised their price targets on the stock following robust growth in the company’s cloud and consulting businesses.

Focus is now on earnings reports from companies including Netflix and Chipotle Mexican Grill later in the day. – Reuters

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