While the Delta variant of coronavirus is marching around the world and inflation is rising, hopes for the development and growth of the global economy are dashing quickly. Stock indices, oil prices, and US government bonds yields have already fallen.
A similar scenario played out at the very beginning of the outbreak of the coronavirus. Investors rushed to sell shares of companies that incurred losses on the introduction of quarantine restrictions. At the same time, they started purchasing government bonds and shares of companies that could benefit from transitioning staff to work remotely.
Meanwhile, oil prices went down after the oil exporting countries agreed to increase production.
All major stocks plunged: the Dow Jones Industrial Average lost 2.1%, the S&P 500 tumbled by 1.6%, and the NASDAQ Composite dropped by 1.1%. American Airlines Group and United Airlines stocks plummeted by 4-6%, while Marathon Oil and Diamondback Energy lost 5%. The yield on the benchmark 10-year Treasury note posted its biggest decline since mid-February, 1.18%. Brent futures contracts plunged by 6.8%.
Candice Bangsund from Fiera Capital reckons that the new variant of coronavirus would postpone economic growth, which in turn may provide investors with an opportunity to buy shares of oil and gas companies, as well as manufacturing and financial firms, at a lower price
An increase in consumer confidence came following the reopening of companies, the growing number of vaccinated people, as well as the government support for businesses and individuals. Meanwhile, rising inflation is weighing on consumer confidence, affecting people's willingness to spend money.
Despite high vaccination rates, countries are still struggling to bring the outbreak under control. In this light, investors are downgrading their expectations for economic growth. Some market participants fear that due to higher prices and decrease in consumption, inflation may accelerate. This in turn will trigger market jitters.
Economic recovery concerns caused turbulence in markets not only in the US but also worldwide. Thus, the STOXX Europe 600 sagged 2,3% along with tourism and commodity stocks. As for the Asian market, the Hang Seng Index dropped by 1.8% amid a plunge in Alibaba and Tencent stocks, and the Nikkei 225 declined by 1.3%. Indonesia and Australia reported on a surge in cases of the Delta variant.
Market experts suggest that the fast spread of COVID-19 and low vaccination rates in Asia are weighing on investors' sentiment, urging them to shift their investments from Asia to markets in countries with higher vaccination rates.
