Heading into the final week of November and deeper into the northern winter, it is clear that the return of Covid Delta across much of Europe and increasingly in the US is rattling markets of all kinds.
That saw the Nasdaq top 16,000 for the first time ever on Friday as the megatechs continued to return to investor favour as they still are seen to benefit in times of Covid based restrictions such as lockdowns.
Not even the approach of the US Thanksgiving and the Black Friday – Christmas selling season this week has been enough to resist the growing fears about the return of the virus.
Despite the growing nervousness saw US shares rose 0.3% last week helped by strong data but with the gain clipped towards the end of the week by concerns about rising coronavirus cases in Europe especially Australia, the Netherlands and Germany.
Eurozone shares fell 0.3% on the back of coronavirus concerns after Austria announced a lockdown, but Japanese shares rose 0.5% while Chinese shares were flat.
Australian shares fell 0.6% with sharp falls in financials on the back of bank margin concerns and in resources stocks reflecting lower oil and iron ore prices up to Friday’s rise.
Bond yields fell in the US and Europe but rose in Australia as traders were left confused by the return of Covid concerns and a weakening in oil prices which, if sustained, will ease inflationary pressures in early 2022.
As oil priced eased, so too did metal prices (especially gold, copper and silver) but iron ore prices rose slightly but only after hitting new lows mid-week. The Aussie dollar fell as the $US rose to trade well under 73 US cents by the end of trading early Saturday, Sydney time.
Investors fear that the new upsurge in cases across Europe and the US, unless controlled quickly, will see central banks – led by the Fed – forced to slow the ending of tapering of their massive spending and support programs.
That’s even as Fed officials increasingly talk about a faster tapering of its bond buying program.
On top of this is the looming decision by President Biden to name a new Fed chair – reappointing current chair, Jay Powell, would see the central bank continue to tighten by slowing the taper.
A decision in favour of Fed Administrative Governor Lael Brainard would see the taper slowed and unsettle markets because she is an unknown quantity when it comes to monetary policy, evn though she does have a reputation for being less hardline on monetary policy issues.
The best indicator of the resurgent market fears is how big tech stocks are back in favour – Friday we saw that nicely illustrated by Nasdaq climbing above the 16,000-point mark for the first time and remaining there as Apple, for instance, hit a new all-time high.
And the return of the tech stocks to centre stage – and the belief they do better in times of Covid lockdowns than do value stocks – saw the ASX 200 futures market shaken on Friday night with a 45 point fall ahead of the resumption of trading on the ASSX later this morning.
Eurozone shares fell 0.6% on Friday as news of Austria’s coronavirus lockdown weighed and this along with Fed officials talking of a faster taper saw the US S&P 500 dip 0.1%.
Nasdaq’s close above 16,000 points for the first time on Friday was its second-straight record finish driven by the return of technology stocks to investor love lists, while Covid jitters sent the Dow to its fourth losing session in the last five.
Both the Nasdaq and S&P 500 index though scored a winning week, up 1.2% and 0.3% respectively, after the previous week’s declines interrupted a five-week run of higher finishes.
The Dow second-successive weekly loss – this one of 1.4% – wiped out the last of its November gains, extending the index’s drop from a November 8 record high to 2.3%.
The Dow fell 268.97 points, or 0.75%, to 35,601.98. The S&P 500 edged up 0.14% lower to 4,697.96. The Nasdaq rose 0.40% to 16,057.44.
Friday’s fall was caused by banking, energy and airline stocks slumping on fears that European countries, battling the resurgence of Covid Delta could follow Austria in moving towards a full lockdown. The Netherlands saw an outbreak of violence on the issue on the weekend.
Banking stocks fell 1.6%, tracking a drop in Treasury yields as investors snapped up safe-haven bonds. The S&P energy index dropped 3.9%, the worst performing sector, as crude prices fell on questions about the strength of demand
United Airlines fell 2.7%, while Delta fell 1%. Boeing lost 5.7% Airbnb dropped 3.8% while Booking Holdings dipped 1.5%. Expedia was also down slightly. Norwegian Cruise Line Holdings was about 2% lower, and Royal Caribbean slipped 2.9%.
In Australia the soft global lead saw ASX 200 futures fell 45 points, or 0.6%, pointing to a decline at the open for the Australian share market today after the index edged up 0.2% on Friday to end at 7,391.7.
One thing to watch today is whether the weakness in US financials triggers another slide in Australian banks and similar stocks like we saw late last week.
The Commonwealth Bank was the only big bank to finish higher on Friday after a tough week as the market reacted strongly to CBA’s shrinking profit margins. The sector declined 3.6% for the week.
Friday saw the ANZ dip 0.66% to $27.30, CBA rose 0.36% to $97.81, the NAB dip 0.49% to $28.57 while Westpac inched one cent higher to end at a weak $22.14.
For the week the CBA fell more than 9%, Westpac lost 2.4%, ANZ shed 3.4% and NAB lost 4.3%.
And investors should be watching the results and fallout from the Chilean presidential and other elections on Sunday. A win by the opposition could see big changes in copper taxes and investment.
That will hurt BHP, Rio Tinto and South32 especially, but could also drive up global copper prices as well.
