NEW YORK, July 2 (Reuters) – Concerns over the spread of the Delta coronavirus variant are emerging in various corners of global financial markets, even as U.S. stocks approach record highs.
The Delta variant is now present in more than 90 countries and has become the most prevalent variant among new cases of COVID-19 in the United States, according to the California genomics company Helix.
So far, however, it’s hard to say how much the new tension will disrupt the rebound in global growth that has helped push risky assets up in recent months.
Here are a few things where concerns about the Delta variant may cause the needle to move.
TRAVEL AND LEISURE STOCKS
Southwest Airlines (LUV.N), American Airlines (AAL.O), Delta (DAL.N) and Carnival Corp (CCL.N) have made the list of the 25 worst performing stocks in the past month, according to an analysis by Reuters. The Dow Jones US Travel & Leisure Index (.DJUSCJ) fell 3.35% in June, compared with a gain of 2.2% for the S&P 500 Index (.SPX).
Oil prices, which have been hammered in the wake of the pandemic, however, rose by around 10% in June.
Concerns about the Delta variant are weighing on the currencies of countries where it is spreading rapidly, notably the Australian dollar and the British pound.
These moves contributed to a rise in the US dollar triggered by the Fed’s hawkish turn and saw the US currency gain 2.7% against a basket of peers in June.
âAt first, I think the risks of the Delta variant were most apparent in sterling,â said John Doyle, vice president of transactions and transactions at payment firm FX Tempus Inc.
“Now I think this is most evident in Pacific Island currencies which are generally tied to Asian risk sentiment.”
Some investors have crowded into Treasuries in recent weeks, fueled by expectations that US growth could peak and the Fed will be less tolerant of rising consumer prices. Some investors believe that new uncertainty over Covid-19 could accelerate the movement of yields on U.S. government bonds, which are among the world’s most popular safe-haven assets.
“The fear that progressive blockages will reappear has recently been a factor” in the positioning of the Treasury, wrote Arnim Holzer, strategist at EAB Investment Group, in a note Wednesday.
âMulti-asset and security research seems to be gaining some interest with the US Treasury and the strength of the dollar,â Holzer said.
GROWTH VS VALUE
So-called value stocks – companies that trade at low multiples of their book value and tend to be more sensitive to economic cycles – surged earlier this year on expectations of an economic rebound, but have stumbled lately.
Meanwhile, shares of growth names including home betting like Amazon.com (AMZN.O), Netflix (NFLX.O), and Zoom Video Communications (ZM.O) and ETSY Inc (ETSY.O) ), have resuscitated.
JP Morgan’s Marko Kolanovic believes the change resembles the one that took place in February, when investors briefly turned defensive over concerns about the Alpha variant, to sell bonds and reinvest in value stocks when the threat was. past.
“We expect this to be repeated now as investors evaluate the so-called Delta variant,” Kolanovic said.
Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Stephen Coates
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