Global shares treaded water on Monday as sharp falls in gold and oil prices and concerns over the spread of the coronavirus Delta variant dented sentiment.
Canada’s main stock index fell from record highs on Monday, with the heavyweight energy sector leading losses.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially down 38 points, or 0.19%, at 20,437.42.
The energy sector dropped 2.1% as oil prices plummeted, while materials stocks finished 1.7% lower.
Oil prices fell as much as 4%, extending last week’s steep losses on the back of a rising U.S. dollar and concerns that new coronavirus-related restrictions in Asia, especially China, could slow a global recovery in fuel demand.
U.S. crude oil futures settled at $66.48 per barrel, down $1.80 or 2.6%. Brent crude ended at $69.04, down $1.66 or 2.4%.
“The selloff in commodities is driving growth concerns as some investors are turning cautious,” said Ed Moya, senior market analyst at OANDA.
Gold slumped to a more than four-month low, as strong U.S. jobs data bolstered expectations for an early tapering of the Federal Reserve’s economic support measures.
Spot gold dropped 2.0% to $1,727.97 an ounce. U.S. gold futures settled 2.1% down at $1,726.50.
The S&P 500 dipped on Monday, as fuel demand worries during a resurgent pandemic sent energy stocks lower but rising U.S. Treasury yields lifted financials stocks, keeping Wall Street’s benchmark index near record levels.
Energy shares were the worst performing of the 11 major S&P sectors, down along with crude prices as mounting coronavirus cases and the potential for restrictions, particularly in China, raised worries about the fuel demand outlook.
China reported more COVID-19 infections, while U.S. cases and hospitalizations were at a six-month high as the Delta variant spread.
Financial shares gained, buoyed by a climb in the 10-year U.S. Treasury yield back above the 1.30% level as a report on job openings showed further evidence of an improving labor market.
“In general, of the economically sensitive cyclicals, it is the interest-rate sensitives that are going to celebrate this normalization of yields, even if normal is 1.30% versus where we were a week ago, which was 1.12%. That is driving the action,” said Art Hogan, chief market strategist at National Securities in New York.
Investors will watch U.S. inflation readings this week for hints about the path of Federal Reserve policy. On Monday, Atlanta Fed president Raphael Bostic said the United States should be well past the pandemic crisis before the central bank raises rates. Richmond Fed President Tom Barkin said high inflation this year may have already met one of the Fed’s benchmarks for raising interest rates.
Later this month, a meeting of Fed leaders in Jackson Hole, Wyoming is expected to provide insight into the central bank’s potential plan to begin tapering its bond purchases.
Unofficially, the Dow Jones Industrial Average fell 107.91 points, or 0.31%, to 35,100.6, the S&P 500 lost 4.11 points, or 0.09%, to 4,432.41 and the Nasdaq Composite added 24.42 points, or 0.16%, to 14,860.18.
A strong earnings season has helped U.S. stocks climb to record highs over the past two weeks, as several consensus-beating results from major firms reinforced belief in a post-COVID economic recovery.
As of Friday, analysts expected second-quarter profit growth of 93.1% for S&P 500 companies, according to IBES data from Refinitiv. Of the 443 companies in the index that have reported earnings so far, 87.4% beat analyst expectations, the highest on record.
Sanderson Farms Inc climbed after it agreed to be bought for $4.53 billion by commodities trader Cargill Inc and investment firm Continental Grain Co at a time when meat prices have been soaring.
Tyson Foods Inc advanced after the meat processing company raised its forecast for fiscal 2021 revenue.
In Europe, gains in healthcare, utilities and technology stocks outweighed declines triggered by a fall in commodity prices earlier on Monday.
The pan-European STOXX 600 index rose 0.2% to a closing high of 470.68 points.
MSCI’s gauge of stocks across the globe gained 0.05%.
Bitcoin hit a three-month high, and broke through the $46,000 barrier, as gold fell.
“Money managers are seeing that as an alternative to gold,” said Dick.
Bitcoin last rose 5.99% to $46,486.77.
The strong jobs data also saw U.S. Treasury yields rise.
Benchmark 10-year notes last fell 9/32 in price to yield 1.3187%, from 1.288% late on Friday.
Holidays in Tokyo and Singapore made for thin trading conditions, adding to the volatility. Yet after an initial fall, MSCI’s broadest index of Asia-Pacific shares outside Japan recovered to be up 0.1%.
Chinese trade data out over the weekend undershot forecasts, while figures out Monday showed inflation slowed to 1% in July, offering no barrier to more policy stimulus.
The U.S. Senate came closer to passing a $1 trillion infrastructure package, though it still has to go through the House.
Investors were still assessing whether Friday’s strong U.S. payrolls report would take the Federal Reserve a step nearer to winding back its stimulus.
“What we’re seeing is a little bit of early profit-taking on the back of fear that tapering will come in earlier in September,” said Sebastien Galy, senior macro strategist at Nordea Asset Management. “But as you can see, it has little impact because the effect of a better economy far outweighs the substitution effect of higher interest rates.”
However, the pace of tapering was still up in the air and would decide when an actual rate increase comes, he said. The Fed is buying $120 billion of assets a month, so a $20 billion taper would end the program in six months while a $10 billion tapering approach would take a year.
The spread of the Delta variant could argue for a longer taper, with U.S. cases back to levels seen in last winter’s surge with more than 66,000 people hospitalized.
Figures for July CPI due this week are also expected to confirm inflation has peaked, with prices for second-hand vehicles finally easing back after huge gains.
Four Fed officials are speaking this week, who will no doubt offer enough grist for markets looking for clues on the timing of tapering.
In the meantime, stocks have been mostly underpinned by a robust U.S. earnings season. BofA analysts noted S&P 500 companies were tracking a 15% beat on second-quarter earnings with 90% having reported.
“However, companies with earnings beats have seen muted reactions on their stock price the day following earnings releases, and misses have been penalized,” they wrote in a note.
“Guidance is stronger than average but consensus estimates for two-year growth suggest a slowdown amid macro concerns.”
The dollar index rose 0.051%, with the euro down 0.14% to $1.1744.
Reuters
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