Market sell-off as “Delta” variant threatens global growth recovery

Vrasidas Neofytou
Head of Investment Research

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Global financial markets have started the week with significant losses as growing concerns over the impact of the “Delta” variant on global economic recovery, have hit risk-sensitive stocks and currencies and have pushed safe assets higher.

The fast-spreading Delta variant is now the dominant strain worldwide and has been accompanied by a surge in infections around Europe, the United States and Asian Pacific regions, largely among the young and unvaccinated.

Dow Jones index lost 2% on Monday, posting its biggest drop for the year, led by losses in economically sensitive stocks which are tied to a successful re-opening, such as the classic cyclical sectors of energy, financials, and travel.

Investors rushed into the safe of the bond market, pushing yields on US Treasury and German Bunds to hit their lowest level since February, intensifying fears of global economic slowdown.

The risk aversion sentiment has also benefited safe-haven currencies such as the US dollar, Japanese Yen and Swiss Franc, which advanced to near multi-month highs against growth-sensitive currencies. 

The Euro fell below the 1,18 level on surging virus cases in Europe, whilst the Pound Sterling dropped to the 1,36 level after the health minister, Sajid Javid, tested positive for the virus.

The commodity-sensitive, Australian dollar, fell to its lowest level since December 2020 as nearly half of the population is living under lockdown whilst commodity prices plunge on concerns over demand.

Meanwhile, cryptocurrencies also sank following the broader market sell-off, with Bitcoin falling below 30,000 dollars for the first time in a month, while Ethereum dropped to yearly lows of 1,700 dollars.

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