Fear that the Mutating Virus Could Slow Recoveries Takes a Toll on Risk Appetites Ahead of Quarter-End
• Fear that the Delta mutation of the Covid virus could crimp the recovery is taking a toll on risk appetites today. This has helped the dollar build on gains and is underpinning the yen as well.
• With the latest measures, nearly half of Australia’s population is in under lockdown.
• The market accepts that the Japanese economy likely contracted in Q2, but the second half is looking considerably better.
• The data focus in Europe is on inflation. Spain was flat at 2.4%, while Germany’s harmonized measure slipped by a bit, setting the stage for tomorrow’s aggregate figure.
• The US reports house prices ahead of the ADP estimate tomorrow. The focus in the US is on employment, with national June figures due at the end of the week.
• Sweden’s political situation remains fluid after the prime minister resigned yesterday. The first attempt to forge a new government with the same parliament can begin later this week. The Riksbank meets on Thursday and may tweak its economic forecasts while leaving rates steady.
Fear that the new mutation of the covid virus will slow the global recovery has sent ripples across the global capital markets.
The foreign exchange market has the clearest reaction, and the dollar is bid. The dollar-bloc and Norwegian krone lead the currencies lower, while the yen is actually posting minor gains against the greenback. The JP Morgan Emerging Market Currency Index is off for the third consecutive session.
The MSCI Asia Pacific Index snapped a five-day advance, and US futures are trading off. Europe’s Dow Jones Stoxx 600 is proving resilient, and its small gains are being led by financials, materials, and energy.
The US 10-year yield is little changed, around 1.48%, while European yields have edged narrowly mixed, with the periphery doing better than the core.
Gold has approached last week’s lows near $1766. August WTI is trading around $2 below yesterday’s high (~$74.45) after reversing lower yesterday. There is talk that OPEC+ could boost output by 500k-1 mln barrels a day. Hot rolled steel in the US reached a new record high yesterday and is up about 80% year-to-date. Copper is lower for the fourth consecutive session, and China’s iron ore futures snapped a four-day advance. The US Department of Agriculture survey reported a deterioration of the US winter wheat crop. Drought conditions and fears that it may extend are underpinning grain prices.
Bannockburn Global Forex