Stocks, U.S. Futures Dip on Delta Strain Concerns: Markets Wrap

Asian stocks dipped Tuesday amid concerns a more infectious Covid-19 strain will derail an economic recovery. Treasuries and the dollar were steady after gains.

An MSCI index of Asia-Pacific shares was on track for its first decline in six days as countries in the region are struggling to contain the highly transmissible Delta variant of the virus. U.S. futures dipped after technology stocks led U.S. benchmarks to fresh records Monday. New limits on travel from Britain, which is seeing a spike in cases, dragged on cruise operators and airlines.

The Treasury yield curve flattened amid month-end index rebalancing and the break in auctions until July 12, reducing supply. Oil extended a decline with the market expecting OPEC+ producers to increase supply at an upcoming meeting. Bitcoin was steady around mid-$34,000.

Global stocks are poised to close out their fifth quarterly advance amid a worldwide vaccine rollout that powered an economic recovery and sparked concerns about increasing prices pressures and the withdrawal of stimulus measures. The recovery also drove the reflation trade as more economies reopened, though that is being hampered as some countries, especially in Asia, are falling behind in their vaccine strategies.

The U.S. is now the best place to be during the pandemic due to its fast and expansive vaccine rollout stemming what was once the world’s worst outbreak. Meanwhile, parts of the Asia-Pacific region that performed well in the ranking until now — like Singapore, Hong Kong and Australia — dropped as strict border curbs remain in place.

“The Delta variant has also emerged in our client conversations as a potential threat to reflation/inflation,” JPMorgan Chase & Co. strategists led by Marko Kolanovic said. “The economic consequences are likely to be limited given progress on vaccinations across developed market economies. It could, however, pose some risk of a delay in the recovery in countries where vaccination rates remain lower.”

Read: Asean Equities May Have Priced In Virus Setback: Taking Stock

For more market commentary, follow the MLIV blog.

Here are some events to watch in the markets this week:

  • OECD meets in Paris to finalize a proposal to overhaul global minimum corporate taxation Wednesday
  • China’s President Xi Jinping will deliver a speech as the nation marks the 100th anniversary of the founding of the Chinese Communist Party Thursday
  • OPEC+ ministerial meeting Thursday
  • ECB President Christine Lagarde speaks Friday
  • The U.S. jobs report is due Friday

These are some of the main moves in markets:

Stocks

  • S&P 500 futures dipped 0.1% as of 1:26 p.m. in Tokyo. The S&P 500 rose 0.2%
  • Nasdaq 100 futures fell 0.2%. The Nasdaq 100 rose 1.3%
  • Topix index fell 1%
  • Australia’s S&P/ASX 200 Index dropped 0.4%
  • Kospi index lost 0.6%
  • Hang Seng Index retreated 0.8%
  • Shanghai Composite Index was down 1%
  • Euro Stoxx 50 futures were little changed

Currencies

  • The yen traded at 110.56 per dollar
  • The offshore yuan was at 6.4638 per dollar
  • The Bloomberg Dollar Spot Index edged up
  • The euro traded at $1.1913

Bonds

  • The yield on 10-year Treasuries held at 1.48%
  • Australia’s 10-year bond yield dropped five basis points to 1.53%

Commodities

  • West Texas Intermediate crude was at $72.56 a barrel, down 0.5%
  • Gold was at $1,774.24, down 0.2%

— With assistance by Rita Nazareth, Vildana Hajric, and Nancy Moran

By:

Source: Stock Market Today: Dow, S&P Live Updates for Jun. 29, 2021 – Bloomberg

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Critics:

Beginning on 13 May 2019, the yield curve on U.S. Treasury securities inverted, and remained so until 11 October 2019, when it reverted to normal. Through 2019, while some economists (including Campbell Harvey and former New York Federal Reserve economist Arturo Estrella) argued that a recession in the following year was likely,other economists (including the managing director of Wells Fargo Securities Michael Schumacher and San Francisco Federal Reserve President Mary C. Daly) argued that inverted yield curves may no longer be a reliable recession predictor.

The yield curve on U.S. Treasuries would not invert again until 30 January 2020 when the World Health Organization declared the COVID-19 outbreak to be a Public Health Emergency of International Concern, four weeks after local health commission officials in Wuhan, China announced the first 27 COVID-19 cases as a viral pneumonia strain outbreak on 1 January.

The curve did not return to normal until 3 March when the Federal Open Market Committee (FOMC) lowered the federal funds rate target by 50 basis points. In noting decisions by the FOMC to cut the federal funds rate by 25 basis points three times between 31 July and 30 October 2019, on 25 February 2020, former U.S. Under Secretary of the Treasury for International Affairs Nathan Sheets suggested that the attention of the Federal Reserve to the inversion of the yield curve in the U.S. Treasuries market when setting monetary policy may be having the perverse effect of making inverted yield curves less predictive of recessions.

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