Stocks slump as Covid-19 jitters fuel rush into bonds

European shares were on track for their biggest slide of 2021, following an equity rout in Asia.
European shares were on track for their biggest slide of 2021, following an equity rout in Asia.PHOTO: REUTERS

NEW YORK (BLOOMBERG) - Stocks slumped around the globe as investors rushed into haven assets after the Delta variant cast a pall over the economic recovery, while tension between the US and China escalated.

In a reversal of the reopening trade that has powered this year's equity rally, cyclical industries bore the brunt of the selloff.

Commodity, financial and industrial shares led losses in the S&P 500, which fell as much as 2 per cent earlier on Monday (July 19). Airlines tumbled with cruise operators amid concern over further travel restrictions. European shares were on track for their biggest slide of 2021, following an equity rout in Asia. Treasury 10-year yields spiralled below 1.2 per cent for the first time since February. The dollar rose alongside the yen and the Swiss franc.

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 surge that had driven stocks to all-time highs.

Geopolitical jitters also resurfaced after the United States, Britain 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.

"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 that we have past peak everything."

For Matt Miskin, co-chief investment strategist at John Hancock Investment Management, the move to "higher-quality assets" such as Treasuries is justified. In a Bloomberg Television interview, he said that "we're in a decelerating growth environment".

Elsewhere, oil sank after OPEC+ agreed to boost supply into 2022. Meanwhile, Bitcoin's selloff accelerated, pushing it closer to US$30,000 once again.

Some key events to watch this week: Reserve Bank of Australia meeting minutes - Tuesday; European Central Bank rate decision - Thursday; Bank Indonesia rate decision - Thursday; US existing home sales - Thursday; The Tokyo Summer Olympics begin Friday.