TToday’s market price action has been curious to say the least with sharp declines in bond yields and stock markets, with the Euro Stoxx 50 falling to its lowest levels in 20e May. The FTSE100 also fell sharply, slipping below the 7,000 level.
The bond market seems to be telling us that the reflation trade is dead or dying, with the US 10-year yield falling to its lowest level since mid-February, down more than 10 basis points from last week’s close, while equity markets are also under pressure from concerns over a slowing global recovery as infection rates continue to rise.
This is quite a different story than the one that predicted that reflation trading of rising yields could put downward pressure on some of the more expensive areas of the stock market. It almost seems old news now, as investors find something else to fear.
Signals from Asian markets were not particularly promising with the Nikkei225 falling after Japan indicated it was set to declare a state of emergency just days before the next Olympics. It is the beggar’s belief that Japan is allowed to continue gambling amid increasing cases, not only across the country but also in Asia.
Last night’s Fed minutes didn’t tell us anything we didn’t already know about the outlook for future monetary policy, while it’s no secret that the Delta variant’s transmission rates have increased and are expected to continue to do so.
What is more surprising is why the markets have chosen to react today to the continuing increase in cases, and fears that these could impact the outlook for global growth, thus impacting expectations of ‘inflation. After worrying about inflation rising too quickly, markets now appear to be worried about demand and slowing inflation.
Khaki Shares are among the biggest falls on the FTSE100 despite exceeding first-half turnover of £ 1.84 billion and 7,406 completions in the reporting period. The average sale price also rose 4.9% to £ 236,200, helping to ease upward pressure on the cost base. Futures sales edged down to £ 1.82 billion from £ 1.86 billion in 2020.
The company also said it was accelerating the return of its pre-covid profile of dividend payments to shareholders by 2022.
Mining values are also lower with Anglo American, Antofagasta and Glencore all lower, in large part due to falling iron ore and commodity prices over fears that the Chinese economy may be weaker than recent data suggests.
Airlines companies work slightly better after the UK government said the quarantine for fully vaccinated UK residents would be lifted from the 19the July for a number of Amber List countries, although they are still expected to take a test before and after arriving home. Both IAG and easyJet are realizing welcome time savings ahead of the UK summer holiday season.
JET2 on the other hand, fell sharply after reporting losses of £ 374million, with passenger numbers plunging 91% to 1.32million.
WISE continued to rise after its successful debut yesterday, with shares opening at 800p to over 900p as investors warmed to a company that is already profitable, and likely to remain so.
Deliveroo the shares continued to advance following its catastrophic drop in its IPO price from 390p at the end of March. Today’s update for the second quarter saw the company reporting an 88% increase in orders while increasing its GTV forecast for the entire year from 30% to 40% to between 50 and 60%, helping to push stocks to the highest levels since opening day. of trade, and up more than 40% from April’s record lows at 225p.
US markets were inspired by today’s sharp falls in Asia and Europe, opening lower, having only set new records yesterday. The latest round of weekly jobless claims slightly exceeded expectations at 373,000, although continuing claims fell to 3.33 million from 3.48 million the previous week.
New Chinese carpooling ADR Didi Chuxing has continued to slide, following its launch earlier this week after Beijing announced a crackdown on all U.S. listings of all Chinese companies. The move, announced just two days after Didi launched in the US market, also affected other Chinese companies listed in the US, including Alibaba, Nio Inc, XPeng Inc, JD.com and Tencent.
With the yield curve flattening, US banks are also under pressure ahead of next week’s second quarter earnings announcements, which are already expected to be below the performance of what was a strong first quarter. perspectives, with Morgan Stanley in the lead.
the euro seems to have ignored today’s action by the European Central Bank by adopting a different mandate to meet its 2% inflation target. Its previous mandate was to keep inflation at 2% or less over the medium term. This morning, the bank changed the mandate in favor of a more flexible and accommodating inflation target of 2%, while also adopting an asymmetric inflation target of 2% over the medium term. This means that he would be prepared to tolerate temporary inflation overruns over his political target. This move can probably be described as a change of style rather than substance given the ECB’s lack of success in fulfilling its last term, which one could argue was likely an easier term. fill.
The Swiss Franc and Japanese Yen also performed well due to the risky nature of today’s price action in stock markets, with traditional cyclical currencies underperforming with the decline of the Australian and Canadian dollars, on lower commodity prices.
Gold prices appear to have benefited from today’s shift in focus from the European Central Bank, as well as the generally lower nature of bond yields on the other side of the track. Not only US 10-year yields fell sharply, but also Bund yields which also came close to three-month lows of -0.34%.
Over the past three days, Brent crude prices have fallen sharply, from peaks of just over $ 78 per barrel on Tuesday to a three-week low today. Moderation in inflation expectations as well as concerns about falling demand appear to dampen some of the recent price hike, despite the lack of OPEC + consensus on increasing production.