Macroscope | Why market fears over the Delta variant are probably overblown

Name: Covid-19 Delta variant: how infectious it is and how it may ‘shift thinking’ on countries reopening
Uploaded: 2021-07-22T19:30:11.000Z
Duration: 5 min 33 s
Description: Covid-19 Delta variant: how infectious it is and how it may ‘shift thinking’ on countries reopening

Over the past 18 months, the pandemic has been more of an irritant than a major headwind for markets

If markets were not unduly concerned when death rates in the developed world were high, Delta outbreaks are unlikely to be the catalyst for a sharp sell-off

Reading Time:3 minutes

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A tour guide wearing a face shield speaks to a group outside Bath Abbey in the UK, on July 5. The Delta variant is spreading, even in countries with high vaccination rates like Britain. Photo: Bloomberg

Nicholas Spiro

Published: 3:30am, 23 Jul 2021Updated: 3:30am, 23 Jul 2021

European stocks, a chronic underperformer in global equity markets, are having a great year. The Stoxx 600 index, the leading gauge of European shares, is up 13.5 per cent since the start of 2021, on a par with the technology-heavy Nasdaq Composite and not that far behind the benchmark S&P 500.

Yet, on Monday, the Stoxx 600 suffered its worst day this year, tumbling 2.3 per cent due to mounting concerns about the rapid spread of the highly transmissible Covid-19 Delta variant. Other major stock markets also suffered sharp declines, while the Vix index of equity market volatility, often referred to as Wall Street’s “fear gauge”, surged 22 per cent.

The pandemic – which devastated the global economy but has had a negligible impact on investor sentiment due to the unprecedented stimulus measures taken to counter the fallout – has been a persistent thorn in the side of markets amid concerns about the strength and durability of the recovery.

While the vaccine breakthrough last November provided a major fillip to sentiment, outweighing concerns about lockdowns in Europe and the United States, the surge in the Delta strain across the globe comes at a time when the medical response to the pandemic is under intense scrutiny.

That new cases are rising exponentially even in countries where vaccination rates are relatively high, such as Britain, is cause for concern. Far more troubling, however, is the failure to sever, or at least weaken, the link between infections and severe health problems in countries with low vaccination coverage, several of which are in Asia, the region previously seen as the most successful in combating the virus.

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Covid-19 Delta variant: how infectious it is and how it may ‘shift thinking’ on countries reopening

It is not difficult to see how the spread of the Delta variant – and the emergence of other infectious strains – could exacerbate concerns about global growth and corporate earnings, causing a sharper deterioration in sentiment.

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.css-1m2rp1p{color:#34b8b5;}Macroscope | Why market fears over the Delta variant are probably overblown

Macroscope | Why market fears over the Delta variant are probably overblown