(Bloomberg) — U.S. futures slumped with stocks amid growing anxiety that the spread of Covid-19 variants will upend growth expectations, undoing popular reflation trades. Bonds rallied.
Contracts on the the S&P 500 and Nasdaq 100 fell 1%, signaling a retreat from new records set Wednesday in the underlying gauges. European equities tumbled more than 1%, with declines led by cyclically-sensitive retailers and commodities firms. Ten-year U.S. Treasury yields continued their descent to the lowest levels since February as U.S. inflation expectations ease.
Traders are getting edgy over whether the rapid spread of the delta strain will knock back growth and prospects for central bank normalization. In Europe, policy makers showed they were ready to extend ultra-loose policy as they agreed to raise their inflation goal to 2% and allow room for an overshoot when needed, according to officials familiar with the matter.
“Worries about variant strains have hurt investor confidence that the pandemic’s effects on the global economy are truly past us,” Nicholas Colas and Jessica Rabe of DataTrek Research wrote in a note. “Our working theory is that we’re in the middle of a modest global growth scare.”
Central bank stimulus plans remain critical to the market outlook, especially the fate of the Federal Reserve’s $120 billion in monthly bond purchases. In minutes of their last meeting, Fed officials weren’t ready to communicate a schedule for scaling back their bond-buying program, due to high uncertainty over the course of the recovery. They did, however, want to establish a plan in case a move is needed sooner.
The dollar and yen firmed on haven demand. Oil declined as investors await further signals from the OPEC+ alliance on production plans after a breakdown in talks.
Meanwhile, the pandemic’s global death toll has surpassed 4 million as the delta variant spreads, and the World Health Organization urged caution on reopenings worldwide.
For more market commentary, follow the MLIV blog.
Here are some events to watch this week:
The ECB is set to announce the results of its strategy review at midday London time; President Christine Lagarde will hold a news conference at 1:30 p.m.The Group of 20 finance ministers and central bankers meet in Venice on FridayChina PPI and CPI data released on Friday
These are some of the main moves in markets:
Stocks
Futures on the S&P 500 Index slumped 1.1% as of 10:57 a.m. London time.The Stoxx Europe 600 Index tumbled 1.4%.The MSCI Asia Pacific Index fell 1.1%.The MSCI Emerging Market Index sank 1.5%.
Currencies
The Bloomberg Dollar Spot Index was little changed.The euro gained 0.4% to $1.1832.The British pound declined 0.1% to $1.3782.The onshore yuan weakened 0.1% to 6.481 per dollar.The Japanese yen strengthened 0.7% to 109.94 per dollar.
Bonds
The yield on 10-year Treasuries fell six basis points to 1.26%.The yield on two-year Treasuries dipped one basis point to 0.20%.Germany’s 10-year yield declined three basis points to -0.33%.Japan’s 10-year yield decreased one basis point to 0.026%.Britain’s 10-year yield fell four basis points to 0.558%.
Commodities
West Texas Intermediate crude declined 0.9% to $71.53 a barrel.Brent crude dipped 0.7% to $72.91 a barrel.Gold strengthened 0.5% to $1,812.89 an ounce.
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