(Bloomberg) — Stocks in Europe headed for the biggest selloff this year and U.S. equity-index futures tumbled as the spread of the delta variant cast a pall over the global economic recovery. Treasuries gained along with the dollar as investors scampered for havens.
Contracts on the S&P 500 and Nasdaq 100 dropped 1% or more, pointing to a stormy open for U.S. stocks as investors flee cyclical sectors. Airlines and banks were among the biggest decliners in pre-market trading in the U.S. Meanwhile, the rally in Treasuries continued, sending 10-year yields to the lowest since February.
The Stoxx Europe 600 index slumped as much as 2.5%, the most since October, setting the gauge on track for a two-month low. All industry sectors were deep in the red, with banks leading the retreat. Energy companies dropped as crude oil declined after OPEC+ struck a deal to increase output. Core European bonds advanced.
The pound slumped to a near-four-month trough and the FTSE 100 plunged 2.4% after the U.K. lifted remaining virus curbs in England even as virus cases increased the most in the world, signaling the challenge nations face to fully reopen their economies.
The resurgence of Covid-19 is stoking a risk-off mood as investors consider whether new lockdown restrictions will sap the economic rebound and reverse an equity rally that had driven stocks to record highs. The decline in Treasury yields may be a signal of cracks in the global recovery, putting the onus back on monetary and fiscal authorities to support ailing economies even as inflation remains elevated.
The stock selloff “reflects growing concerns about the delta variant with the rebound in new cases across the world and the tightening of containment measures in several Asian countries,” Credit Agricole COB strategists led by Jean-François Paren wrote in a note. “As the pandemic and economic prospects become more uncertain, it is again the role of central banks and governments to compensate for the worsening outlook.”
Data at the end of last week showed retail sales remained robust in the U.S. but consumer sentiment unexpectedly declined as mounting concerns over rising prices led to a deterioration in buying conditions for big-ticket items.
Another week of major earnings reports lies ahead. While stock bulls hope they will provide support for equities, companies are evidently also focused on price pressures. The word “inflation” was mentioned on 87% of the earnings conference calls by S&P 500 companies tracked by Bloomberg this month, compared with 33% in the same period a year ago.
Elsewhere, MSCI Inc.’s gauge of Asia-Pacific shares hit the lowest in about a week, with Japan and Hong Kong underperforming and technology stocks struggling. Emerging-market stocks and currencies weakened.
For more market commentary, follow the MLIV blog.
Here are some key events to watch this week:
Reserve Bank of Australia meeting minutes TuesdayEuropean Central Bank rate decision ThursdayBank Indonesia rate decision ThursdayU.S. existing home sales ThursdayThe Tokyo Summer Olympics begin Friday
And here are some of the main market moves:
Stocks
Futures on the S&P 500 fell 1.2% as of 8:33 a.m. New York timeFutures on the Nasdaq 100 fell 0.9%Futures on the Dow Jones Industrial Average fell 1.4%The Stoxx Europe 600 fell 2.4%The MSCI World index fell 0.8%
Currencies
The Bloomberg Dollar Spot Index rose 0.4%The euro fell 0.3% to $1.1772The British pound fell 0.4% to $1.3707The Japanese yen rose 0.5% to 109.52 per dollar
Bonds
The yield on 10-year Treasuries declined seven basis points to 1.22%Germany’s 10-year yield declined four basis points to -0.39%Britain’s 10-year yield declined six basis points to 0.57%
Commodities
West Texas Intermediate crude fell 3.6% to $69.22 a barrelGold futures fell 0.9% to $1,798 an ounce
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