HomeContributorsFundamental AnalysisRisk Assets Under Pressure As COVID-19-Fears Return

Risk Assets Under Pressure As COVID-19-Fears Return

Market movers today

  • Today is another quiet day in terms of economic data releases. In the afternoon, US housing starts, and building permits are due out, which will shed some light on the recent development in construction (where activity seems to be declining after a very hot period).

Economic calendar

Covid-fears return: Risk assets tumbled across the board yesterday as covid-fears are once again returning to the forefront of investors’ minds with the number of new cases increasing in different parts of the world. U.S. authorities issued a travel warning, advising travellers going to the U.K. to reconsider their plans as the number of new cases hit more than 50,000 per day over the weekend, which is only some 10,000 below the levels seen in the beginning of the year. In the U.S. New York State recorded more than 1,000 new cases, the most since May, and in Texas covid-related hospitalisations reached above 3,000 for the first time in three months. Vaccines have appeared effective in lowering the correlation between new cases and hospitalisations, which should limit the need to re-impose strict lockdowns in countries with a high vaccine uptake.

EU rule of law: In a report due later today the European Commission officially warns of judicial independence being under pressure in both Poland and Hungary, while highlighting other threats to the rule of law such as corruption and favouritism. The report is published as both countries’ applications for Next Generation EU funds are currently being assessed, with Poland applying for EUR 24bn and Hungary EUR 7bn. The Commission is under pressure from both MEPs and other member states to toughen up in order to ensure that core EU values are maintained across the union.

Equities: Equities, as other risk assets, naturally were under pressure yesterday with the S&P500 extending losses (-1.6%) in what has been difficult past seven days (the index is down 3% since last Monday). The VIX increased 4 points to the highest level since the beginning of May. This morning Asian indices are down roughly 1% (Hang Seng and Nikkei) whereas index futures in both Europe and the U.S. points to a stable opening later today.

FI: US government bond yields declined heavily on Monday performing along with other safe haven assets settling in at 1.19%, which was 9bp below the level at market open and 50bp below the levels in May. The move was almost solely driven by longer than 5y yields as curve flattened correspondingly. Longer dated U.S. inflation expectations have come lower in recent weeks, but not enough to keep real rates stable with the 10y USD real rate ending the day at -1.12%, which is only marginally above the all-time low recorded seven months ago.

FX: In a tough session for anything rhyming on reflation NOK FX unsurprisingly took the biggest losses with EUR/NOK back above the 10.50 threshold for the first time since January. USD, CHF, and not least JPY – the traditional winners in a global fixed income rally – all posted gains. Yet the sharp decline in USD real rates limited the appreciation of the USD. Industrial sensitive currencies such as EUR, SEK, and CNH did decent given the global environment while CAD, AUD, NZD joined NOK as the biggest underperformers.

Credit: Credit experienced another weak day on Monday, amid rising concerns about the Delta variant and general uncertainty about the economic recovery. This caused iTraxx Main to widen 1.7bp to 49.3bp, whilst iTraxx xover widened 9.2bp to 247.4bp. The primary market remains subdued due to the summer lull.

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