World stocks steady, Treasury yields up as Delta variant spreads
LONDON: World stocks steadied, Treasury yields rose and the dollar held firm on Friday as markets took a cautious breather in the face of new concerns about the pace of the economic recovery from Covid-19.
Markets have been roiled this week as a rise in cases of the Delta coronavirus variant crimped risk appetite and led to a flight to safety, with some betting the post-pandemic reflation trade had stalled and secular stagnation was back on the agenda.
“There seems to be the gradual realisation for many that the vaccination programmes alone won’t prove enough to get economies back to their pre-covid normality, with cases at the global level now ticking up again as the more infectious Delta variant spreads across the world,” said Deutsche Bank analyst Jim Reid.
Weighed against that is the still ultra-easy monetary policy from many major central banks, although some fear this could yet be curtailed if inflation picks up and policymaker largesse is reined in.
“Swings in sentiment and positioning may prove to be powerful in both directions. But ultimately, the data will be key,” said Mark Dowding, chief investment officer at Bluebay Asset Management.
On Friday, data from China showed new bank loans rose more than expected in June, while broad credit growth also picked up. China’s central bank also announced a new cut in the cash banks must hold in reserve, trying to shore up growth.
The MSCI World index edged higher, up 0.1 per cent, as gains among many European bourses helped offset overnight weakness in Asia, but remains on course for a weekly fall of around 1 per cent.
The STOXX Europe 600 index was up 1 per cent, recovering more than half of the prior session’s decline, but still on course to record the second straight week of losses.
Overnight in Asia, MSCI’S broadest index of Asia-pacific shares outside Japan had briefly touched two-month lows before paring losses to trade down 0.1per cent. US stock futures pointed to a higher open on Wall Street, up 0.3 per cent. Analysts said an accumulation of events had triggered the more cautious sentiment.
Fears central banks could choke economic recovery by tightening policy to try to curb inflation, the rapid spread of the Delta variant and low rates of vaccination have darkened the outlook.
In Australia, stay-at-home orders were introduced in Sydney to combat the spread of the virus. Vietnam also introduced new restrictions. Record deaths were reported across South Asia. Federal Reserve Bank of San Francisco President Mary Daly told the Financial Times that low vaccination rates in some parts of the world posed a threat to US growth.
After dipping sharply over the early part of the week, yields on 10year Treasury notes were on Friday up around 4.5 basis points to 1.336 per cent, off the 4-1/2 month low of 1.25 per cent hit on Thursday. A reading on Thursday on the number of Americans filing new unemployment claims added to views that the job market recovery from the pandemic continues to be
choppy.
Gold on course for third week of gains as reflation trade in question as Covid cases rise