Tuesday, July 5

Reflation angst spreads to stocks as yields slide

Traders are getting edgy over whether the rapid spread of the Delta strain will knock back growth and prospects for central bank normalization

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US futures slumped with stocks amid growing anxiety that the spread of COVID-19 variants will upend growth expectations, undoing popular reflation trades. Bonds rallied.


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Contracts on the the the S&P 500 and Nasdaq 100 tumbled more than 1 per cent, signalling a retreat from new records set Wednesday in the underlying gauges. Thirty-year US Treasury yields touched their lowest level in five months as inflation expectations eased.

Traders are getting edgy over whether the rapid spread of the Delta strain will knock back growth and prospects for central bank normalization.

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“Worries about variant strains have hurt investor confidence that the pandemic’s effects on the global economy are truly past us,” Nicholas Colas and Jessica Rabe of DataTrek Research wrote in a note. “Our working theory is that we’re in the middle of a modest global growth scare.”

Central bank stimulus plans remain critical to the market outlook. While the Federal Reserve edges closer to tapering its US$120 billion in monthly bond purchases, the European Central Bank stands ready to extend ultra-loose policy.


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The institution’s major strategic review Thursday is expected to include a higher inflation goal, and allow room to overshoot that goal if needed.

Oil declined as investors await further signals from the OPEC+ alliance on production plans after a breakdown in talks. Miners contributed the most to the 1.8 per cent decline in European stocks.

Meanwhile, the pandemic’s global death toll has surpassed 4 million as the delta variant spreads, and the World Health Organization urged caution on reopenings worldwide.

These are some of the main moves in markets:


  • Futures on the S&P 500 Index sank 1.5% as of 11:40 am London time.
  • The Stoxx Europe 600 Index tumbled 1.8%. The MSCI Asia Pacific Index fell 1.2%.
  • The MSCI Emerging Market Index decreased 1.6%.


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  • The Bloomberg Dollar Spot Index was little changed.
  • The euro gained 0.3% to US$1.1828.
  • The British pound declined 0.3% to US$1.3758.
  • The onshore yuan weakened 0.3% to 6.489 per dollar.
  • The Japanese yen strengthened 0.7% to 109.86 per dollar.


  • The yield on 10-year Treasuries fell seven basis points to 1.25%.
  • The yield on two-year Treasuries dipped one basis point to 0.20%.
  • Germany’s 10-year yield declined four basis points to -0.34%.
  • Japan’s 10-year yield decreased one basis point to 0.026%.
  • Britain’s 10-year yield fell five basis points to 0.55%.


  • West Texas Intermediate crude declined 1.3% to US$71.29 a barrel.
  • Brent crude dipped 1% to US$72.70 a barrel.
  • Gold strengthened 0.4% to $1,811.26 an ounce.



In-depth reporting on the innovation economy from The Logic, brought to you in partnership with the Financial Post.


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