Renewed COVID fears
Fears that the new Delta variant will delay the reopening affected the markets in July. Nonetheless, the stock exchanges continued to rise, apparently driven by falling long-term interest rates.
For the month as a whole, the American S&P 500 Index rose by 2.4 per cent measured in USD, while the European Stoxx 600 Index climbed 2.1 per cent measured in EUR and the Nordic VINX Index increased by all of 7.8 per cent measured in NOK. The Oslo Stock Exchange (OSEBX) saw an upturn of 1.2 per cent.
New wave of infection
The new Delta variant of the coronavirus is spreading fast all over the world. In the USA, it can be seen that the number of COVID-19 cases caused by this variant is growing sharply in states with low vaccine uptake, such as Missouri, Nevada and Arkansas. Australia has imposed a new lockdown and the virus has also flared up again in China. On the positive side, the Delta outbreak in the UK seems to have peaked. It is also important to differentiate between infection figures and serious cases that lead to hospital admissions. The vaccines still appear to be providing protection, and this gives us grounds for optimism.
Long-term interest rates have fallen
Slightly weaker macro figures, combined with the aforementioned increase in the Delta variant, caused the market to recalibrate its growth expectations. This led to the US 10-year Treasury yield plummeting by more than 30 points. At the end of the month, the yield was at around 1.2 per cent, back at levels we saw in February. The fall in the yield and expectations of continued support from central banks led to renewed talk of TINA (There Is No Alternative). This meant that typical shares with a long duration in defensive sectors such as technology and health did very well.
What about inflation?
While the 10-year Treasury yield plummeted, inflation expectations remained quite stable. A shortage of components and supply chains that are out of step with each other are among the factors that have made inflation a widely discussed topic in the market recently. We have also seen commodity prices rise sharply from the trough in March last year. It is still not certain whether these effects are mainly temporary. A slowdown in the economy is also a factor that may lead to the pendulum swinging back in the direction of lower inflation.
The road ahead …
Company earnings are still strong and the outlook for the global economy is good despite outbreaks of new COVID-19 variants. Combined with continued full support from fiscal and monetary policies, this indicates that shares will remain an attractive asset class.
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