Global shares hover near record highs as rising COVID cases and a slew of economic data leaves investors cautious

Stock Market Traders
  • Global shares remained near record highs despite COVID-19 cases continuing to rise.
  • US inflation, Chinese quarterly economic data and Jerome Powell’s semi-annual testimony to Congress are in focus.
  • Growth in Japan’s machinery sector boosted Asian stocks as it indicated sustained economic recovery.
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Global shares were mixed on Monday, with economically sensitive sectors such as energy and banking under pressure, while more defensive parts of the market such as healthcare rose, as as COVID-19 cases linked to the delta variant continued to rise and bring renewed lockdowns.

Key data on US consumer inflation and regional manufacturing activity along with Chinese economic growth could provide a steer on how much the resurgence of COVID-19 is impacting the global recovery.

Federal Reserve Chairman Jerome Powell will also deliver his semi-annual testimony on the state of the economy to Congress this week, while the European Central Bank will revise its current monetary policies, which investors are expecting will provide them with guidance on growth and inflation in the eurozone.

US futures were a mixed bag, as Dow Jones futures dipped by 0.29% and S&P 500 futures were down 0.19%, while Nasdaq futures were up by 0.11% at 04:30 am E.T. on Monday.

“In the US, CPI data tomorrow will tell us whether we did indeed see the peak in inflation in May – our economists think we did, forecasting a slowdown in headline CPI from 5.0% to 4.8% in June, potentially putting a cap on Fed rate expectations for now.” ING analysts said.

The yield on the US Treasury 10-year note was last at 1.333%, down by 2.3 basis points, reflecting a degree of investor demand for so-called safe haven assets.

Rising COVID-19 cases linked to the Delta variant are also weighing on global markets as they signal a potential delay in post-pandemic economic recovery.

“We’re also seeing higher case counts in the UK, US and Europe, which could also add to the uncertainty,” Michael Hewson, chief market analyst at CMC markets said. “The lower vaccination rate in Europe could prove problematic in the days ahead,” he added.

European stocks dipped on Monday. Frankfurt’s DAX was last down 0.14%, while London’s FTSE 100 dipped by 0.56% and the EuroStoxx 50 index of top eurozone stocks was 0.25% lower.

The European Central Bank might announce revisions to its monetary policy at its meeting this week, but will not end its post-pandemic recovery program, ECB President Christine Lagarde said on Bloomberg TV.

Asian markets were boosted by Japanese machinery orders rising for the third consecutive month in May and the country posting higher than expected producer price index readings on Monday. The data releases boosted investor confidence in the economy recovering despite a rise in COVID-19 cases in the region.

Tokyo’s Nikkei 225 rose by 2.25% in response and pulled shares across the region up with it as the Shanghai Composite closed 0.67% higher and Hong Kong’s Hang Seng index rose by 0.65%.

The energy sector broadly declined on Monday. OPEC+ reached no agreement on production and abandoned a planned meeting last week, which has raised concern that the group could splinter and raise output at will. Brent crude futures were last down by 1.19%, trading for $74.65 per barrel, while WTI crude fell 1.17% to $73.69 a barrel. Natural gas was last trading 1.06% lower, while heating oil declined by 1.35%.

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The Delta variant of COVID-19 does not pose a risk to the stock market and could help boost value and yields, JPMorgan says

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  • The spread of the Delta variant of COVID-19 poses no risk to the stock market, JPMorgan said in a note.
  • Value stocks and bond yields are poised for a rebound as investors reassess risks of the variant.
  • “The Delta variant should not have significant repercussions for the pandemic situation in developed markets due to the level of population immunity,” JPMorgan explained.
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The spread of COVID-19’s Delta variant does not pose a risk to the stock market, and could in-turn drive a rebound in value stocks and bond yields, JPMorgan said in a note on Wednesday.

The spread of the delta variant has been front of mind for many investors in recent weeks, as data suggests it is now the most common strain of COVID in the US. The fast spreading variant has led to a surge in cases in countries like the UK and Israel, and some governments are responding by reinstituting mask mandates and lockdown initiatives.

But “the Delta variant should not have significant repercussions for the pandemic situation in developed markets due to the level of population immunity,” JPMorgan said, adding that stock market positioning should not be driven by any variant of COVID-19 for which vaccines are effective.

Both Pfizer and Moderna have said that their COVID-19 vaccines are highly effective in preventing infection of the Delta variant.

The bank pointed to market action when the B.1.1.7 variant of COVID-19 which was spreading across the country earlier this year as reason for why value stocks and bond yields should see a rebound going forward.

“When the market properly assessed the risk of B.1.1.7, yields and value staged a strong rally from mid-February to mid-March, while growth stocks (often perceived as beneficiaries of lockdowns) sold off,” JPMorgan explained. “We expect this to repeat now as investors assess the so-called Delta variant,” the bank added.

The current market setup with the Delta variant is similar given that growth stocks have been in favor relative to value stocks amid the spread of the new COVID strain. But if JPMorgan’s analysis proves correct, that trade should unwind soon, and growth stocks should once again underperform value stocks.

“We reiterate our view to go long reflation, cyclical and value trades, and sell growth and defensive positions,” JPMorgan concluded.

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Global stocks hover below record highs ahead of US inflation data, while oil falls for a 2nd day as demand optimism fades

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Global stocks mostly edged lower on Tuesday as investors remained focused on inflation data, with the US consumer price index report due on Thursday.

Futures on the Dow Jones, S&P 500, and Nasdaq fell 0.1%, indicating a slightly lower start to trading later in the day.

The S&P index was still less than a quarter of a percent away from its all-time closing high a month ago, Deutsche Bank strategists said.

Biotech stocks added 1.13% to the Nasdaq the previous day, driven primarily by a record 38% jump in Biogen’s closing price after the company received FDA approval for its new drug to treat Alzheimer’s.

The growth rate of weekly COVID-19 cases is currently at its slowest since mid-March, according to Deutsche Bank. Cases in the US are rising at their slowest pace since March 2020, while India reported fewer than 100,000 daily cases for the first time in over two months. Numbers in the UK, however, have jumped 53% compared to last week, as the Delta variant spreads.

“While we remain alert to inflation risks, we believe the backdrop remains benign for stocks – with benefits most obvious for cyclical parts of the market, including energy and financials,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said.

Separately, lower commodity prices weighed on European stocks with basic resources declining 1.6% and energy down 0.25%, while auto stocks rose 0.8% and consumer products added 0.7%.

London’s FTSE 100 rose 0.2%, the Euro Stoxx 50 rose 0.0.7%, and Frankfurt’s DAX fell 0.1%.

Bitcoin traded 9% lower on Tuesday, while ethereum and dogecoin dropped more than 10%. The main cause behind this most recent crypto sell-off is unclear, but one theory suggests that US federal officials recovering a majority of the ransom Colonial Pipeline paid to a hacker group shows the digital asset can still come under official control.

President Joe Biden is expected to discuss cryptocurrencies at the G7 summit in the UK’s coastal county of Cornwall this weekend.

“Cryptos face an existential threat from major economies regulating or banning them,” said Jeffrey Halley, a senior market analyst at OANDA. “China has started, and the wolves are circling. The Colonial Pipeline saga was a case of flying too close to the sun. Attacks on critical infrastructure will not go unnoticed by important and powerful people.”

Asian equities mostly traded flat or lower. “In general, commodity-related sectors like materials and energy are leading the underperformance,” Deutsche Bank said.

The Shanghai Composite fell 0.5%, Tokyo’s Nikkei fell 0.2%, and Hong Kong’s Hang Seng fell 0.1%.

Oil prices retreated from highs as Brent crude fell 0.7% to $70.96, and West Texas Intermediate fell 0.6% to $68.75 per barrel.

“The price action has all the hallmarks of a very long speculative market getting nervous at the highs and is not indicative of an overall change in sentiment for energy,” Halley said.

“With some improvement in the pandemic situation in India and the recovery in the US, China and Europe remaining on track, oil should remain a buy on dips, with no warning signs coming from the technical momentum indicators,” he said.

Read More: UBS handpicks 7 real estate stocks to own in the post-pandemic world as they benefit from major changes brought on by the ongoing economic reopening

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Stocks recovered too quickly from the pandemic and could face a correction in the next year, a survey from the CFA Institute says

  • 45% of survey respondents told the CFA Institute that global stocks have bounced back too fast after the COVID-19 pandemic.
  • Equity markets are likely to hit a correction in one to three years as central banks rollback stimulus efforts.
  • The MSCI ACWI Index of large- to mid-cap stocks worldwide has gained about 25% so far in 2021.
  • See more stories on Insider’s business page.

Stocks have been resilient after last year’s plunge into a bear market because of the COVID-19 pandemic but the recovery has moved too fast in the eyes of many investment professionals who say equities could face a correction in the next 12 months.

45% of respondents in a CFA Institute survey agreed that equities in their respective markets have “recovered too quickly.” The institute Tuesday released the results of its survey, which tallied responses from 6,040 members worldwide.

The results indicate that financial analysts believe there is a disconnect between economic growth fundamentals and capital markets caused in part by monetary stimulus, the institute said.

Central banks worldwide cut interest rates to ultra-low levels and increased asset purchases, among other actions, to foster economic recovery from the coronavirus crisis that forced a widespread shutdown of businesses and threw millions of people out of work. Those moves along with vaccinations of people worldwide from the respiratory disease have encouraged investors to embrace so-called risk assets including stocks.

In the US, the S&P 500 has gained nearly 12% since the start of 2021. That gain follows its 16.3% rise in 2020 after sliding into a bear market in March 2020 because of worries about the world’s largest economy falling into recession. The tech-concentrated Nasdaq Composite has also advanced this year, picking up 7%, although many large-cap tech stocks have dropped in favor of small-cap stocks of companies who are closely exposed to economic recovery. The Nasdaq soared in 2020 by 43.6%.

Meanwhile, the MSCI ACWI Index, representing large- and mid-cap stocks in 23 developed and 27 emerging markets, has picked up about 25% this year following its 16.3% rise in 2020. The MSCI ACWI ETF has bulked up by 11% during 2021.

But stocks are likely to run into a correction within one to three years as central banks begin to rollback stimulus as their respective economies mend from the pandemic, the survey respondents told the CFA.

“To me, it also indicates to authorities that monetary stimulus is not a simple or linear lever to pull given the complexity of the economic and financial ecosystem; there will be unintended consequences to consider in the future,” Paul Andrews, managing director of research, advocacy and standards at the CFA Institute, said in a statement.

Minutes from the Federal Reserve policy meeting in April indicated were moving closer to beginning discussions about potentially tapering economic support. The Fed has held its benchmark interest rate near zero and has bought at least $120 billion in assets each month to aid the economy through the pandemic.

The CFA Institute said 150,024 individuals received a survey invitation and the total response rate was 4%. The margin of error was plus or minus 1.2%.

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