European stocks were heading for their worst session of the year as the growing threat from the Delta coronavirus variant triggered a plunge in global stock and commodity markets, as investors sought safe havens in government bonds and gold.
The region-wide Stoxx Europe 600 fell 2.7%, the biggest drop since October, while London’s FTSE 100 lost 2.6% and was on track to experience its biggest drop in percentage on a day since September.
Across the Atlantic, the blue-chip US S&P 500 index fell 1.7% and the technology-focused Nasdaq Composite fell 1.5%. In commodities, Brent crude, the international benchmark for oil, fell 5.7% to $ 69.45 per barrel.
The yield on 10-year US bonds – a benchmark for assets around the world – fell 0.12 percentage points to 1.18%, its lowest since early February. German 10-year yields fell to minus 0.4% and UK 10-year yields to 0.52%, both five-month lows.
Government bonds have been rallying for weeks as acute inflation concerns at the start of the year began to fade. But Monday’s moves mark a significant acceleration in the decline in yields, and a change in tone as bond gains have been accompanied by a selloff in stocks.
“It is the market awareness that we are moving from a clear V-shaped recovery to something much more uncertain,” said Mohammed Kazmi, portfolio manager at Union Bancaire Privée. “The hope was that the vaccines would provide us with the end of the game. Now investors are watching the UK and there is a bit of fear that such an aggressive reopening when cases are still so high. “
The pullbacks in equities, which came after months of steady gains in major markets around the world, also reflected fears that economic growth generated by reopening industries after last year’s shutdowns could peak when the inflation is rising on both sides of the Atlantic.
“Valuations and sentiment have all reached extreme growth heights,” said Ewout van Schaick, head of multi-asset investments at NN Investment Partners. “Now, of course, the resurgence of the virus is causing uncertainty about economic progress in the months to come.”
New York state on Saturday recorded more than 1,000 cases in one day for the first time since mid-May, as authorities in countries like Australia and Vietnam battled rising infections. Singapore has tightened social distancing restrictions and preparations for the Tokyo Olympics have been delayed by a coronavirus outbreak.
England lifted most coronavirus restrictions on Monday as more than half a million people, including Prime Minister Boris Johnson, were ordered to self-isolate after coming into contact with those infected .
“The growing apprehension surrounding the global rebound. . . contributed to the T-bill bid which we believe has ample scope to extend, ”said Ian Lyngen, head of US rate strategy at BMO Capital Markets.
The British pound fell 0.7% against the dollar to $ 1.3674, its lowest since early February. The dollar index, which tracks the progress of the greenback against major currencies, remained stable.
Economists expect the US economy to grow at an annualized rate of 9 percent in the second quarter of the year, but to slow down thereafter. New data is expected at the end of this month.
Consumer prices in the United States rose 5.4% in June, year-over-year, following pandemic supply chain bottlenecks and billions of dollars of monetary and fiscal stimulus. Inflation also exceeded the Bank of England‘s target last month.
The sharp drop in Brent crude stumbled widespread bets on further gains, as concerns over economic growth compounded earlier falls caused by Opec and its allies in a deal to increase production to counteract rising prices.
Opec + agreed on Sunday to increase production by 400,000 barrels per day each month until 2022, although traders said the amount had been widely anticipated by the market.
Saudi Arabia and the United Arab Emirates overcame differences in how production targets are calculated by agreeing that the major producers in the group would see so-called “baseline” production levels revised upwards, although it is unlikely to add additional oil supplies in the short term. -term.
Some market players, however, believe that Opec + is overly optimistic about the supply and demand balances, with enormous uncertainty about the appearance of a recovery in demand after the pandemic.
Facts Global Energy (FGE) analysts said the group had set “a very optimistic production path until next year.”
Three-month copper futures, a barometer of likely economic growth, fell 1.4% to $ 9,311 per tonne.
Additional reporting by David Sheppard in London