Delta variant is getting on the market radar. What does it mean for equity markets?
The newsflow related to the new Covid-19 delta variant is putting a dent on equity markets. What disturbs the most is that even countries with a high proportion of vaccinated people are forced to return some social curbs as this raises the question about vaccines efficacy. Some countries attempt to contain the outbreaks, others are taking preventive measures, however market worries stem from the fact that growing number of key economies are getting involved in this trend. Stock markets in Europe fell today after German newspaper Bild reported that in light of the threat of the new strain, European leaders will discuss measures for travelers returning from other countries. Tourism and travel sector led declines. Investors also reacted negatively to the news that Hong Kong has placed the UK on the list of countries with "extremely high risk", completely banning the entry of travelers from this country. The UK100 index posted the largest loss today among the major European indices, potentially reflecting investor doubts about the effectiveness of the Astra Zeneca vaccine against the new strain.
In the forex market, the dollar is taking a decisive offensive ahead of the June Non-Farm Payrolls report on Friday. The US economy is expected to add 700,000 jobs, which will increase the chances of an early start of tightening of the Fed policy. Last week, a number of representatives of the Fed spoke in favor of raising rates, only the head of Powell chose a bearish tone, but the impact of his remarks on the market was short-lived.
Last week, on Friday, data on US income and expenditures were released, which showed disappointing MoM gains. However, the main interest of the market was of course focused on inflation indicators. Annual growth of Core PCE, which is the preferred Fed measure of inflation, amounted to 3.4% in annual terms, monthly growth did not meet expectations. The US debt market apparently cheered bullish inflation release, yields of longer-maturity Treasuries dropped, indicated that investors flocked into bonds following release of the data.
Despite the fact that the Fed considers inflation to be temporary, it is at its highest since 1992:
There are many upside inflation risks, in particular if firms in the US continue to experience hiring problems. Like last time, the dollar may react upward, and Treasury yields will rise if the NFP report shows that monthly wage growth will again significantly exceed the forecast. This will most likely indicate that the labor shortage in the United States persists, which means that companies may be inclined to raise prices, shifting inflation to consumers. It is highly likely that the markets will perceive this as an increased risk of the Fed's sudden move towards tighter credit conditions.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
The newsflow related to the new Covid-19 delta variant is putting a dent on equity markets. What disturbs the most is that even countries with a high proportion of vaccinated people are forced to return some social curbs as this raises the question about vaccines efficacy. Some countries attempt to contain the outbreaks, others are taking preventive measures, however market worries stem from the fact that growing number of key economies are getting involved in this trend. Stock markets in Europe fell today after German newspaper Bild reported that in light of the threat of the new strain, European leaders will discuss measures for travelers returning from other countries. Tourism and travel sector led declines. Investors also reacted negatively to the news that Hong Kong has placed the UK on the list of countries with "extremely high risk", completely banning the entry of travelers from this country. The UK100 index posted the largest loss today among the major European indices, potentially reflecting investor doubts about the effectiveness of the Astra Zeneca vaccine against the new strain.
In the forex market, the dollar is taking a decisive offensive ahead of the June Non-Farm Payrolls report on Friday. The US economy is expected to add 700,000 jobs, which will increase the chances of an early start of tightening of the Fed policy. Last week, a number of representatives of the Fed spoke in favor of raising rates, only the head of Powell chose a bearish tone, but the impact of his remarks on the market was short-lived.
Last week, on Friday, data on US income and expenditures were released, which showed disappointing MoM gains. However, the main interest of the market was of course focused on inflation indicators. Annual growth of Core PCE, which is the preferred Fed measure of inflation, amounted to 3.4% in annual terms, monthly growth did not meet expectations. The US debt market apparently cheered bullish inflation release, yields of longer-maturity Treasuries dropped, indicated that investors flocked into bonds following release of the data.
Despite the fact that the Fed considers inflation to be temporary, it is at its highest since 1992:
There are many upside inflation risks, in particular if firms in the US continue to experience hiring problems. Like last time, the dollar may react upward, and Treasury yields will rise if the NFP report shows that monthly wage growth will again significantly exceed the forecast. This will most likely indicate that the labor shortage in the United States persists, which means that companies may be inclined to raise prices, shifting inflation to consumers. It is highly likely that the markets will perceive this as an increased risk of the Fed's sudden move towards tighter credit conditions.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.