Global Markets Tumble as Economic Recovery Fears Emerge

09 Jul 2021 · 3rd Party Analysis

Global Markets Tumble as Economic Recovery Fears Emerge

WRITTEN BY ThorFX

In Summary

  • World shares slide as mounting Delta strain concerns overshadow economic recovery prospects
  • Treasury bond prices set to log their sharpest weekly climb in over a year

Uncertainty over the global recovery outlook knocked financial markets worldwide on Thursday. Surging coronavirus cases and prospects of stalling economic rebound roiled the markets as investors took off risk in efforts to protect their portfolios from the downside.

Broad-based global selloff swept world shares, with the Dow dropping over 250 points. The S&P500 and the Nasdaq Composite retreated from record highs reached a day before. Stocks tied to the economic reopening were hurt the most during yesterday’s session. Bank stocks and travel-and-leisure stocks were among the worst performers of the day.

Europe’s region-wide Stoxx 600 declined 1.72%. Stock market indexes in Europe, such as France’s CAC40, Spain’s IBEX35, Germany’s DAX, each lost about 2% on Thursday.

In Asia, Japan declared a state of emergency for Tokyo and announced it would bar spectators from all Olympic events held in the capital city. The move came as part of a broader effort to curb a surge in coronavirus cases.

Gold prices dropped about 1% from their session high on Thursday. The precious metal reached a three-week high as the price advanced to $1,818 per troy ounce. Later, the buying momentum faded and the price dipped in negative territory for the day.

The Rally Pauses in Europe and Asia

Rising concerns about the anticipated rosy outlook for the global economy pushed US government bonds to a weekly advance unseen in more than a year. The yield on the 10-year US Treasury note, which falls when bond prices rise, slid to a low of 1.276%. The broad-market drop put the world’s benchmark bond yield at its lowest level in nearly six months.

Like Wall Street, Asian markets and European bourses put the rally on pause, Delta strain fears have darkened the prospects for a global reopening. Federal Reserve official, Mary Daly, warned the surge in Delta variant cases is a serious threat to global recovery.

“I think one of the biggest risks to our global growth going forward is that we prematurely declare victory on Covid,” Mary Daly, the president of the Federal Reserve Bank of San Francisco, said in an interview on Thursday.

“In the United States the news has been pretty positive, but the global news hasn’t been all that positive,” Ms. Daly said. “It’s been good but it hasn’t been terrific. Markets respond to those things, and that can of course lower yields because they’re pricing in the risk there.”

Mary Daly, who is a voting member of the Federal Open Market Committee, pointed that the waning confidence in the post-pandemic recovery could be strengthened by higher vaccinations rates in areas where current vaccine efforts fail to bring satisfactory results.

According to the World Health Organization, the “shocking inequity” in vaccination campaigns across the globe is the underlying reason for the recent sharp rise in cases. “Compounded by fast-moving variants and shocking inequity in vaccination, far too many countries in every region of the world are seeing sharp spikes in cases and hospitalizations,” said Tedros Adhanom Ghebreyesus, WHO’s director-general.

Meanwhile, vaccination programs around the globe have seen more than 3.35bn jabs administered across 180 countries, as per Bloomberg data.

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