European and Asian shares and oil prices dropped, while government bonds rallied as fresh Covid-19 outbreaks clouded the outlook for the global economy.
Europe’s Stoxx 600 index fell 1.7 per cent and London’s FTSE 100 dropped 1.9 per cent. Japan’s Topix fell 1.3 per cent, while Hong Kong’s Hang Seng dropped 1.7 per cent.
Government bonds extended their recent rally as investors sought safe assets, pushing yields to multi-month lows. The 10-year US Treasury yield hit 1.252 per cent on Monday, its lowest since mid-February. Germany’s 10-year yield hit minus 0.37 per cent, the lowest since early March.
Brent crude, the international oil benchmark, dropped 2.7 per cent to $71.60 a barrel as economic growth concerns compounded earlier falls caused by Opec and its allies reaching a deal to raise production to counter increasing prices.
The moves came as investors grappled with the rapid spread of the highly transmissible Delta variant of Covid-19, which has struck countries that had previously brought the virus under control.
New York state on Saturday recorded more than 1,000 cases in a day for the first time since mid-May, while authorities in countries including Australia and Vietnam were battling rising infections, Singapore tightened social distancing restrictions and Tokyo’s Olympic Games were set back by a coronavirus outbreak.
Futures markets signaled Wall Street’s S&P 500 share index would fall 0.8 per cent in early New York dealings.
The Stoxx and the US S&P 500 hit records earlier this month on the back of exuberance about coronavirus vaccines and companies reaping the benefits of economies reopening.
“Valuations and sentiment all reached extreme growth highs,” said Ewout van Schaick, head of multi-asset investment at NN Investment Partners. “Now, of course, the revival of the virus is causing uncertainty about economic progress in the months ahead.”
The dollar index, which measures the greenback against major currencies and tends to gain in time of stress, gained 0.3 per cent.
Sterling dropped 0.4 per cent against the dollar to $1.37, a three-month low. England lifted most coronavirus restrictions on Monday while more than half a million people, including prime minister Boris Johnson, had been told to isolate after coming into contact with infected individuals and retailers and ports reported staff shortages.
The Stoxx travel sector dropped 2.6 per cent, as stocks in travel-dependent economies fell sharply. Italy’s FTSE MIB dropped 2.1 per cent and Spain’s Ibex fell 1.5 per cent.
After US-listed stocks ended Friday with their worst weekly performance in more than a month, futures markets signalled the blue-chip S&P 500 index would drop 0.5 per cent in early trades.
Michael Hood, global multi-asset strategist at JPMorgan Asset Management, said the rapid spread of the Delta variant was “forcing investors to refocus on the virus at a time when most had been happy to leave that issue behind”.
Markets were also weighing up how monetary policymakers will deal with rising inflation after US and UK consumer price increases unexpectedly accelerated in June.
The US Federal Reserve is under pressure to taper its $120bn of monthly bond purchases that have boosted markets throughout the pandemic in response to inflation trends while some UK lawmakers are pushing the Bank of England to rein in its own government debt buying.
Additional reporting by Tommy Stubbington in London