Last week, the number of new cases in the US increased by 70% compared to the previous week and the number of deaths increased by 26%, with outbreaks occurring mostly in those parts of the country where the vaccination rates are the lowest. Such numbers are very negative for both stock indices and commodity markets. All three major US stock indices closed the session with sharp declines, with the S&P 500 and Nasdaq experiencing their biggest one-day percentage drop since mid-May. And for the Dow Jones index, it was the worst day for the last nine months. The US Treasury yields also fell, which caused a decline in the stocks of the banking sector. On the other hand, everybody knew that the stock market was “overheated” and needed a fresh breath in the form of a correction movement. Now it is important to watch whether the positive quarterly reports of the companies will be able to renew the growth of the stock indexes. If this does not happen, the correction can be much stronger.
European stock indices also closed the trading day in the red zone. British FTSE 100 lost 2.34%, German DAX decreased by 2.62%, French CAC 40 lost 2.54%, Italian FTSE MIB decreased by 3.34%, and Spanish IBEX 35 – by 2.4%. The decline was observed in almost all sectors of the economy. The floods in the central part of Europe, which started in the middle of last week due to heavy rains, made the general situation even worse. The number of daily COVID-19 cases in the UK increased sharply after most of the restrictions were lifted on Monday.
Oil prices decreased almost by 8% yesterday. There are two reasons for such a precipitous drop. The first reason is that the OPEC+ countries agreed to increase the daily oil production to the pandemic level (the supply started to catch up with the demand). The second reason is that new outbreaks of COVID-19 also continue to darken fuel demand prospects, as some countries reintroduce isolation measures.
Gold and silver prices jumped amid falling stock indices and the declining US government bond yields. The fundamental picture for precious metals is in favor of higher prices now. But as soon as the Fed starts cutting stimulus, there will be a decrease in the gold and silver market.
Asia-Pacific stock indices also fell sharply yesterday. The Delta strain of COVID-19 is taking a significant toll on the economic recovery of the region. Japan’s Nikkei 225 Index hit a six-month low yesterday. In its turn, China’s blue-chip index CSI300 remained unchanged. The People’s Bank of China kept the benchmark interest rate on loans unchanged. In Australia, about half of the population is living under quarantine to quell an outbreak of the Delta strain. Earlier this month, the Reserve Bank of Australia (RBA) announced that it would cut bond purchases starting from September. But today at the RBA meeting, the issue was raised that the RBA could cancel its decision to reduce QE if Sydney remains in lockdown until August, as seems likely.
Main market quotes:
- S&P 500 (F) 4,258.49 -68.67 (-1.59%)
- Dow Jones 33,962.04 -407.11 (-2.62%)
- DAX 15,133.20 -407.11 (-2.62%)
- FTSE 100 6,844.39 -163.70 (-2.34%)
- USD Index 92.84 +0.15 (+0.16%)
Important events for today:
- Japan National Consumer Price Index (m/m) at 02:30 (GMT+3);
- Australia RBA Meeting Minutes at 04:30 (GMT+3);
- China PBoC Loan Prime Rate at 04:30 (GMT+3);
- US Building Permits (m/m) at 15:30 (GMT+3).