US equities, Treasuries and the dollar all weakened on Monday as investor sentiment swung from cheering strong economic data to concern over the worsening coronavirus situation worldwide.
After hitting its latest record high last week, the US blue-chip S&P 500 index dropped 0.6 per cent in the first hour of Wall Street dealings. The technology-focused Nasdaq Composite fell more than 1 per cent, dragged lower by consumer cyclical and energy stocks.
The dollar, as measured against a basket of currencies, weakened by 0.5 per cent to hit a six-week low.
The S&P 500 had risen for four consecutive weeks while Treasuries had rallied alongside stocks, as investors bought into an economic growth trend while banking on continued policy support from the Federal Reserve.
Markets were now “positioned for a regime change,” said Francesco Sandrini, head of multi-asset investments at fund manager Amundi.
“The Covid-19 dynamics in the short term do not look easy to tackle,” he added, especially in larger emerging markets such as India and Brazil.
This had made investors unsure, he said, whether the world would achieve “that really strong growth over the next six months that markets were pricing in, or something more anaemic”.
Data released last week showed US homebuilding surged to a near 15-year high in March while retail sales increased by the most in 10 months.
Fed chair Jay Powell told the Economic Club of Washington DC last week that the central bank would not taper its $120bn of monthly asset purchases until it saw “substantial further progress” towards full employment.
But over the weekend the number of deaths from the pandemic passed 3m globally and the UK registered new cases of a Covid-19 variant from India on top of another first discovered in South Africa.
Yuko Takano, equities portfolio manager at Newton Investment Management, said that reopening trades that involved buying up shares in banking, industrial and consumer businesses whose fortunes were pegged to an economic rebound were “starting to fade out”.
Markets that had cheered a strong vaccine rollout in the US and President Joe Biden’s $1.9tn stimulus may have “crossed over into needing something new to look forward to,” she said.
Multinationals including Procter & Gamble and American Express also report quarterly earnings this week, which investors will scrutinise for clues about consumer spending in emerging markets and whether supply chain bottlenecks caused by the pandemic are damaging businesses’ bottom lines.
Earlier on Monday Coca-Cola described its global markets as “asynchronous”, with demand improving in regions where vaccines had been deployed quickly while sales in other parts of the world were not expected to follow suit until normal mobility patterns resumed.
Demand for government debt also weakened on Monday. As prices dipped, the yield on the benchmark 10-year US Treasury note rose 0.03 percentage points to 1.61 per cent, while the yield on the equivalent German Bund increased by the same amount to minus 0.23 per cent.
After weeks of little action, the foreign exchange market sprang back into life on Monday as the drop in the dollar spurred bets on other developed market currencies. Sterling jumped by almost 1 per cent against the dollar to purchase $1.397. The euro gained 0.4 per cent to cross $1.20.
Global oil benchmark Brent crude added 0.2 per cent to $66.77 a barrel.