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Stocks rally despite global recovery fears

·3-min read

European shares have bounced back from their worst day of the year, but German bond yields slipped to fresh five-month lows as a reminder investors remain worried the spread of the Delta coronavirus variant could derail the economic recovery.

Europe's STOXX 600 added one per cent on Tuesday, boosted by a clutch of positive corporate earnings and production updates from miners, while in the US e-mini futures for the S&P 500 index were up 0.6 per cent.

The positive moves followed more selling in Asia, with MSCI's gauge of Asia Pacific stocks outside Japan falling 0.7 per cent and Japan's Nikkei 225 hitting a six-month low, down nearly one per cent.

China de-leveraging risks hurt property stocks and the broader market for a second day, causing a plunge in shares of heavily indebted developer China Evergrande Group.

The Hang Seng Index dropped 0.8 per cent while China's blue chip CSI300 Index was 0.1 per cent lower.

MSCI's broadest gauge of global shares was 0.5 per cent lower, extending its longest-losing streak in nearly 18 months.

"The reality is that this price action has become somewhat self-fulfilling as the myopic investor sentiment and positioning are forced to re-assess," said James Athey, investment director at Aberdeen Standard Investments.

"I fear the equity selling isn't over yet, and if I am right, Europe will be the worst place to be given the index is value dominated - and thus very cyclical."

Riskier assets globally have come under pressure recently as many countries struggle to contain the outbreak of the fast-spreading Delta virus variant, raising fears that further lockdowns and other restrictions could upend the worldwide economic recovery.

Stocks on Wall Street fell as much as two per cent on Monday, with the Dow posting its worst day in nine months as COVID-19 deaths increased in the United States.

In a separate gauge of investor risk appetite, bitcoin fell below $US30,000 for the first time since June 22.

"Despite the vaccine rollout, markets do not appear to be learning to live with COVID-19," ANZ analysts wrote in a note to clients.

"Sentiment appears to have shifted, at least for the moment, to a persuasion that growth and earnings expectations may be overdone," they said, noting that risk-averse investors were bailing out of commodities.

In a sign of lingering fears of the spread of the Delta variant, the Aussie dollar/Swiss franc cross, a favourite proxy in currency markets for economic recovery bets, fell to its lowest level since December 2020 at 0.6714 francs, according to Refinitiv data.

Against a basket of its rivals, the US dollar strengthened widely on Tuesday and was close to an early-April high of 93.041 hit in the previous session.

US yields turned higher following Monday's searing rally. The 10-year yield rose to 1.217 per cent from a close of 1.181 per cent, a level last seen in February.

However, while the US yield curve steepened slightly, the spread between the US 10-year and 2-year yield remained near February lows, signalling investor doubts about the growth outlook.

In Europe, Germany's 10-year yield, the benchmark for the bloc, briefly fell to -0.403 per cent, breaching a new lowest level since February and was down around one basis point to -0.398 per cent, as of 0733 GMT.

Oil prices stabilised after slumping around seven per cent in the previous session due to worries about future demand and after an OPEC+ agreement to increase supply.

Brent crude gained 0.7 per cent to $US69.11 a barrel. The US crude contract for August delivery, which expires later on Tuesday, was up 0.9 per cent at $US66.64 a barrel.

Spot gold was flat at $US1812.16 per ounce after hitting a one-week low of $US1794.06 in the previous session.

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