Sunday, June 4, 2023

FirstFT: Delta variant rocks global markets


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The threat of the Delta coronavirus variant hit global equity markets on Monday, handing European bourses their worst session of the year and sending US stocks down more than 2 per cent.

Commodity prices also fell and investors headed for the safe haven of government bonds. It helped to push the yield on the 10-year Treasury note to its lowest level in six months, extending a shift in investor sentiment as fears over runaway inflation have given way to creeping concerns over the durability of US growth, compounded by the spread of the Delta variant.

Europe’s region-wide Stoxx Europe 600 lost 2.3 per cent in its biggest one day price fall of 2021, with London’s FTSE 100 dropping by the same amount. On the other side of the Atlantic, the S&P 500 index lost more than 2 per cent before moderating in afternoon trading to close 1.6 per cent lower.

The technology-focused Nasdaq Composite fell 1.1 per cent. In commodities, Brent crude, the international oil benchmark, declined 7.1 per cent to $68.38 a barrel.

Column chart of Stoxx Europe 600 index, daily % change showing Worst day for European stocks this year

The yield on the US 10-year Treasury note — a benchmark for assets around the world — tumbled 0.10 percentage points to 1.19 per cent, its lowest level since mid-February. Yields on the German 10-year Bund fell to minus 0.39 per cent and on the UK 10-year gilt to 0.56 per cent, both five-month lows.

Government bonds have been rallying for weeks as some of the acute anxiety over inflation this year has started to ebb. But Monday’s moves mark a significant acceleration of the drop in yields and a shift in tone as gains for bonds came alongside an equity sell-off.

“This is the market’s realisation that we are moving from a clear V-shaped recovery into something a lot more uncertain,” said Mohammed Kazmi, a portfolio manager at Union Bancaire Privée. “The hope was that vaccines would provide us with the endgame. Now investors are looking at the UK and there’s a bit of fear with regards to reopening so aggressively when cases are still so high.”

Five more stories in the news

1. US accuses China of masterminding cyber attacks worldwide
The White House and its western allies have accused the Chinese government of teaming up with criminal gangs to commit widespread cyber attacks, including one on Microsoft this year that affected tens of thousands of organisations.

2. Biden: rising inflation won’t undercut US recovery Joe Biden sought to soothe fears that rising inflation could hurt the US recovery and undermine his $4tn spending plans, saying the administration would remain vigilant about rising prices and that he expected the Federal Reserve to take action if needed.

3. Companies in Hong Kong fear being crushed between China and US US business groups said a Biden-administration warning about the risks of operating in Hong Kong has made life more difficult as they navigate a sweeping security crackdown by China.

4. Tokyo Olympics hit by rising Covid cases and scandals Tokyo’s dreams of a trouble-free run-up to Friday’s Olympic opening ceremony have been shattered by a tally of Covid-19 infections, an alleged rape, a bullying scandal and a missing weightlifter.

5. Haiti’s interim prime minister agrees to step aside
Haiti’s acting prime minister, who has been in charge of the country since president Jovenel Moïse was assassinated 12 days ago, has agreed to step aside under diplomatic pressure and hand over power to a rival.

Coronavirus digest

  • Singapore has strengthened social-distancing restrictions after reporting the highest number of cases since August 2020.

  • The Centers for Disease Control and Prevention urged US citizens Monday to avoid travel to the UK, the same day England removed all restrictions on social contact as part of Prime Minister Boris Johnson’s “freedom day”.

  • Canada will begin to allow fully vaccinated American tourists to enter the country from early August, and vaccinated travellers from other destinations a month later.

  • Britain’s Prime Minister Boris Johnson on Monday said individuals will need to show proof of two Covid-19 vaccines to get into nightclubs and other venues where large groups gather.

  • The US is experiencing a “pandemic of the unvaccinated”, the head of the country’s top public health agency warned, as new coronavirus cases jumped 70 per cent in the past week.

Follow our live coronavirus blog and sign up for our Coronavirus Business Update newsletter for more Covid-19 news.

The day ahead

Out of this world Amazon founder Jeff Bezos flies to space today, the anniversary of the first Moon landing, along with his younger brother Mark, 82-year-old aviator Wally Funk and 18-year old Dutch student Oliver Daemen.

Earnings Streaming giant Netflix, Philip Morris, UBS and Chipotle announce earnings today.

Hearing on cyber security The US House Energy and Commerce subcommittee meets today to examine the growing threat of ransomware, a day after the White House accused China of teaming up with criminal gangs to commit widespread cyber attacks.

What else we’re reading

Robotaxis: a ‘moonshot’ solution to full automation? Since Google launched its self-driving car project in 2009, the biggest question for the technology has been: can it be safe enough to deploy at scale? Now, the risk for robotaxis is not whether full autonomy can succeed, but whether they can be low-cost enough to make a business case.

China far from reaching superpower status Global military power is what elevates nations to superpowers, but Beijing may not care to rival the US in this arena, argues Gideon Rachman.

India tech IPO boom to test investor appetite Food delivery app Zomato has kicked off a flurry of stock market debuts by Indian start-ups that hope crackdowns on Chinese technology groups could prompt global investors to turn their attention to India’s tech offerings.

Iran Sanctions The US is contemplating sanctions on Iran’s oil sales to China, the country’s primary client, as negotiators seek to resuscitate the 2015 nuclear deal. (The Wall Street Journal)

Two big reasons to doubt the global boom Though economists expect the reopening boom in the global economy to roar through the coming quarters, there are two increasingly pressing reasons to question its strength and length: China and the US. The two superpowers are the locomotives of global growth, but cracks are appearing in their economic engines, writes Ruchir Sharma.

Brazil’s Lula keeps policies a mystery Since his return to Brazilian politics in March, the popularity of Luiz Inácio Lula da Silva has continued to rise. But some Brazilians wonder what a new Lula presidency could look like. He has conceded that his ideas “change when the facts change”, and has veered from socialist union leader to the head of a liberal economic administration in 2003.

Luiz Inácio Lula da Silva speaks at a metalworkers’ union in March. His allies insist any third term would be characterised by pragmatic dealmaking and progressive values © Victor Moriyama/Bloomberg

FT Podcast

You can’t always get what you quant From picking the best stocks to listening in on earnings calls, AI-powered systems are changing finance. But how big are the rewards, really? And what are the risks? In this episode, Robin Wigglesworth tells us how AI has been used in investing, what happens when programs must adapt to new risks and what the robots could learn from watching children play. 

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