Stocks slumped around the world as investors rushed into haven assets after the delta coronavirus variant cast a pall over the economic recovery, while tension between the U.S. and China escalated.
In a reversal of the reopening trade that has powered this year’s equity rally, cyclical companies bore the brunt of the rout on Monday. Commodity, financial and industrial shares led losses in the S&P 500, which fell the most in two months. The Dow Jones Industrial Average had its biggest decline since October, while small caps extended a slide from March’s peak to nearly 10%. After recently plunging to pre-pandemic levels, the Cboe Volatility Index, or VIX, soared.
With the risk-off sentiment spreading across global markets, long-term Treasury rates spiraled to their lowest since February -- dragging the yield curve flatter. Ten-year yields tumbled as much 12 basis points to as little as 1.17%. The dollar rose alongside the yen and the Swiss franc. Despite the classic safety trade, gold retreated. Oil sank after OPEC+ agreed to boost supply into 2022. Meantime, Bitcoin’s slide pushed the world’s largest digital currency closer to $30,000.
The resurgence of Covid-19 is unsettling global investors, who are considering whether new lockdown restrictions will sap the economic rebound and reverse an equity rally that had driven stocks to a record. Matt Miskin, co-chief investment strategist at John Hancock Investment Management, told Bloomberg Television that the move to “higher-quality assets” such as Treasuries is justified. Americans should avoid traveling to the U.K. because of a surge in that nation’s spread of Covid-19, U.S. government and health officials warned.
“Risk aversion is firmly in place as the Delta Covid variant spread is triggering a flight to safety,” wrote Edward Moya, senior market analyst at Oanda. “Equities were ripe for a pullback given Wall Street was in agreement that this is ‘as good as it gets’ for peak earnings, economic growth, monetary stimulus. It is hard to hold risky assets over the short-term now.”
Geopolitical jitters also resurfaced on Monday after the U.S., the U.K. and their allies said the Chinese government has been the mastermind behind a series of malicious ransomware, data theft and cyber-espionage attacks against public and private entities -- including the sprawling Microsoft Exchange hack earlier this year.
ome key events to watch this week:
- Reserve Bank of Australia meeting minutes Tuesday
- European Central Bank rate decision Thursday
- Bank Indonesia rate decision Thursday
- U.S. existing home sales Thursday
- The Tokyo Summer Olympics begin Friday
Here are some of the main market moves:
- The S&P 500 fell 1.6% as of 4 p.m. New York time
- The Nasdaq 100 fell 0.9%
- The Dow Jones Industrial Average fell 2.1%
- The MSCI World index fell 1.7%
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro was little changed at $1.1798
- The British pound fell 0.7% to $1.3671
- The Japanese yen rose 0.5% to 109.49 per dollar
- The yield on 10-year Treasuries declined 10 basis points to 1.19%
- Germany’s 10-year yield declined three basis points to -0.39%
- Britain’s 10-year yield declined seven basis points to 0.56%
- West Texas Intermediate crude fell 7.6% to $66.34 a barrel
- Gold futures fell 0.2% to $1,812 an ounce