European and Asian shares fell as growing concerns over Covid-19 outbreaks clouded the outlook for the global economy.
In early morning trading on Monday, Europe’s Stoxx 600 index fell 1.4 per cent. London’s FTSE 100 dropped 1.3 per cent as England lifted most of its coronavirus restrictions. Optimism about the reopening was overshadowed by more than half a million people, including prime minister Boris Johnson, being told to isolate after coming into contact with infected individuals. Businesses including supermarkets and ports reported staff shortages.
Japan’s Topix fell 1.3 per cent, while Hong Kong’s Hang Seng dropped 1.7 per cent.
After US-listed stocks ended Friday with their worst weekly performance in more than a month, futures markets signalled the blue-chip S&P 500 index would drop 0.5 per cent in early trades.
Stocks stumbled as investors grappled with the rapid spread of the highly transmissible Delta variant of Covid-19, which has struck countries that had previously brought the virus under control. The moves coincided with uncertainty about the path of central banks’ monetary support after inflation rose in the US and the UK.
Michael Hood, global multi-asset strategist at JPMorgan Asset Management, said the rapid spread of the Delta variant was “forcing investors to refocus on the virus at a time when most had been happy to leave that issue behind”.
New York state on Saturday recorded more than 1,000 cases in a day for the first time since mid-May, while authorities in countries including Australia and Vietnam were battling rising infections, Singapore tightened social distancing restrictions and Tokyo’s Olympic Games were set back by a coronavirus outbreak.
The Stoxx and the US S&P 500 hit records earlier this month on the back of exuberance about coronavirus vaccines and companies reaping the benefits of economies reopening.
“Valuations and sentiment all reached extreme growth highs,” said Ewout van Schaick, head of multi-asset investment at NN Investment Partners. “Now of course the revival of the virus is causing uncertainty about economic progress in the months ahead.”
Markets are also grappling with how monetary policymakers will deal with rising inflation after US and UK consumer price increases unexpectedly accelerated in June. The US Federal Reserve is under pressure to taper its $120bn of monthly bond purchases that have boosted markets throughout the pandemic in response to inflation trends while some UK lawmakers are pushing the Bank of England to rein in its own government debt buying.
The yield on the benchmark 10-year US Treasury bond, which moves inversely to its price, dropped 0.02 percentage points to 1.275 per cent as traders bought the haven asset.
The dollar index, which measures the greenback against major currencies, gained 0.3 per cent. The euro lost 0.2 per cent against the dollar to $1.1781.
Brent crude, the international oil benchmark, dropped 1.5 per cent to $72.47 a barrel. The move came after Opec and its allies reached a deal to raise oil production to counter increasing prices, announcing a plan to reverse all output cuts made during the pandemic by the end of 2022.
Brent had soared to a three-year high of more than $74 a barrel as demand recovered this year, and it was uncertain whether the Opec+ cuts will be enough to offset upward pressure on prices as demand is expected to rise further in the months ahead.