Stock futures, oil drop as variable delta sends investors into bonds

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US stock futures, oil prices and government bond yields fell, on concern that the spread of the delta-coronavirus variant will hamper the global economy.

S&P 500 futures are down 1%, pointing to opening losses on a broad stock market gauge after it snapped a three-week winning streak on Friday. Contracts for the Dow Jones Industrial Average fell 1.2%. Technology-focused Nasdaq 100 futures fell 0.8%.

In a sign that investors were sheltering in government bonds and other haven assets, the 10-year Treasury yield fell to 1.235% on Monday from 1.30% on Friday. Yields, which fall when bond prices rise, haven’t been this low since mid-February. The WSJ Dollar Index, which measures the US currency against a basket of other currencies, rose 0.3%.

Oil prices fell after the Organization of the Petroleum Exporting Countries and a group of major producers led by Russia agreed to increase production. Brent crude futures, the international benchmark, fell 3% to $71.41 a barrel, their lowest since mid-June.

The moves were reminiscent of the trading patterns that prevailed in the early days of the pandemic. Investors sold shares of companies directly affected by movement and business restrictions, while buying government bonds and shares that would benefit from the work-from-home phenomenon.

Coronavirus cases in many parts of the world, including highly-vaccinated countries such as the United Kingdom, have prompted investors to back off their forecasts for economic growth in the coming months. Some also worry that a sharp rise in prices will pinch consumption and cause central banks to withdraw stimulus, creating an environment of lower growth and higher inflation where stocks tend to struggle.

“The emergence of a more transferable delta variant … has raised questions about the sustainability of reopening and recovery,” said Candice Bangsund, portfolio manager at Fiera Capital. It does not believe the alternative will derail a significant recovery in economic activity and views the sale as an opportunity to acquire shares of energy producers, industrial companies and financial firms.

The inflation rate reached its highest level in 13 years recently, prompting a debate about whether the United States is entering an inflationary period similar to the 1970s.

Airlines and oil and gas companies were among the worst performers before the bell in New York. Occidental Petroleum lost 4.9%, United Airlines 4%, Diamondback Energy 3.7% and American Airlines Group 3.5%.

One bright spot was Five9, which jumped 8.3% on news that Zoom Video Communications is planning to buy the cloud-based customer service software provider in a deal that values ​​the company at $14.7 billion. Zoom shares fell 2.5 percent in pre-market trading.

Adding to caution among investors is evidence that inflation, which accelerated to a 13-year high in the US in June, is beginning to erode consumers’ confidence in their ability to keep spending. For most of 2021, reopening businesses, higher vaccination rates, and government aid against pandemics helped drive rapid gains in consumer spending, a major driver of the economy.

“What you’re seeing is a sense that the consumer is starting to get very affected” by the price jump, said Sebastian Galley, chief macro analyst at Nordea Asset Management.

Concerns about the economic effects of the virus were evident in the broad decline in global markets. The regional Stoxx Europe 600 Index fell 1.9%, led by shares of travel, leisure and economically sensitive commodities, along with banks.

Among other stocks, Paris-listed Vivendi fell 1.5 percent. Pershing Square Tenten, a blank check company led by hedge fund manager Bill Ackman, said it has dropped plans to buy a 10% stake in Universal Music Group. Ackman’s Pershing Square said it would take a large stake in Universal, majority owned by Vivendi, instead.

Italian luxury fashion house Ermenegildo Zegna will go public on the New York Stock Exchange later this year as part of a partnership agreement with Investindustrial Acquisition. Shares of SPAC, headed by Sergio Ermotti, the former chief executive of UBS, tumbled before the bell rang in New York.

In Asia, technology giants Alibaba and Tencent weighed on Hong Kong’s Hang Seng Index, which lost 1.8 percent at the close of trading. The losses came after the Biden administration on Friday warned US companies of the increased risks of operating in the financial center.

The rise in Covid-19 cases in many parts of the world has prompted investors to lower expectations for economic growth. Photo: Richard Drew/Associated Press

Japan’s Nikkei 225 index was down 1.3%. More athletes and staff who attended the Tokyo Olympics have tested positive, while cases are increasing in Indonesia. Sydney, the most populous city in Australia, is under lockdown due to the outbreak in the Delta.

The spread of the delta variable across Asia, along with low vaccination rates and expectations of additional social distancing measures, “has taken the wind off sailing for many investors anticipating an economic recovery” in the region, said David Chao, market analyst at Invesco.

Mr. Zhao said he expects investors to continue to withdraw money from Asian stocks and transfer it to stocks in developed markets with high vaccination rates, such as the United States and the United Kingdom.

Write to Joe Wallace at [email protected] and Frances Yoon at [email protected]

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