LONDON (Reuters) – Europe’s share markets spluttered and government bond yields burrowed lower on Thursday after the head of the Federal Reserve dampened taper talk and traders struggled with the rapid global rise in COVID-19 Delta variant cases.
There was a giant helping of Chinese data to digest too, including a slightly below consensus second quarter GDP reading, as well as forecast-topping Morgan Stanley earnings and a dip in weekly U.S. jobless claims.[.N]
China’s data was hardly dismal – average growth actually surpassed Q1, while June retail sales and industrial output beat expectations. But it did show authorities, who only last week squirted 1 trillion yuan into the financial system, will ensure conditions stay loose.
But markets’ delight after Fed Chair Jerome Powell told Congress he saw no need to rush the shift towards tighter post-pandemic monetary policy had not lasted long.
Japan’s Nikkei had fallen more than 1% overnight following a late dip from Wall Street and, though China’s bourses rallied after its data, London, Paris, Frankfurt and S&P 500 futures were all 0.3%-1% lower ahead of U.S. trading. [.N]
The main all-world indexes were also off their recent record highs, tempered possibly by rising COVID-19 cases around the globe and signs the post-pandemic bounce in company earnings may also be hitting a peak.
The World Health Organisation (WHO) COVID-19 dashboard reported the first weekly rise in global deaths from the virus in 10 weeks and a 5.6% jump in daily case numbers on Wednesday.
“The market is fearing the Delta variant could take a hold of different economies so you are almost seeing that we are back to the ‘bond yields lower, tech doing well’ scenario,” said Justin Onuekwusi, portfolio manager at Legal & General Investment Management.
The likes of Amazon and Google are up 6-8% this month, while China’s biggest tech firms Alibaba and Tencent have surged more than 12% since China’s central bank made a supportive policy tweak for the first time in nearly a year on Friday.
(Graphics: The spread of COVID-19 variants of concern: )
The U.S. Labor Department’s weekly jobless report showed the number of Americans filing new claims for unemployment benefits fell for the week ended July 10.
Traders were also waiting for the Philadelphia Fed’s closely followed business confidence survey and whether the second day of Powell’s testimony to the U.S. Congress, which starts at 1330 GMT (0930 ET), would provide any more signals.
He had said on Wednesday that the U.S. economy was “still a ways off” from levels the central bank wanted to see before tapering its monetary support.
He also said he was confident that the recent rise in inflation associated with the country’s post-pandemic reopening would fade.
His comments came after data published this week showed consumer prices increased by the most in 13 years in June.
Government bond yields, which reflect borrowing costs and move inverse to price, dipped globally. The 10-year U.S. Treasuries yield slipped to 1.3257%, having peaked at 1.423% on Wednesday, while Japan’s 10-year yields touched the lowest level of the year.
The yield on inflation-protected U.S bonds, sometimes called the real yield, dropped to minus 1.027%, near its lowest levels since February. Germany’s bunds went as lows at -0.342%
While Powell’s comments fanned buying in bonds, concerns about inflation hardly disappeared.
“The (U.S.) CPI numbers were pretty shocking to me,” said Nobuyasu Atago, chief economist at Ichiyoshi Securities. “People say rises in used car prices are the main culprit but it’s not just that. New cars, home electronic goods and services are all rising. And the past record shows when energy prices rise, that impact normally last for about two years.”
Nevertheless, Powell’s dovish stance had put a minor dent on the U.S. dollar in the currency markets, though it didn’t last long.
The euro drifted back to $1.1810 from $1.1845 after touching a three-month low of $1.1772. The dollar stood at 109.73 yen after a 0.6% fall on Wednesday.
The Chinese yuan dipped to 6.4628 per dollar in Asia after hitting a three-week high of 6.4508 overnight.
Gold jumped to a one-month high of $1,829.8 per ounce on Wednesday and last stood at $1,827.9.
Oil prices dropped though, after major global oil producers came to a compromise about supply and after U.S. data showed demand slacked off a bit in the most recent week. [O/R] [EIA/S]
Brent futures lost 1.3% to $73.76 per barrel. U.S. crude futures dropped away from this month’s 7-year high to just under $72 per barrel, while London-listed oil majors Royal Dutch Shell and BP fell roughly 3% in European trading.
(Graphics: MajorFx: )
($1 = 6.4693 Chinese yuan)
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