Good morning. A U.S. travel warning for the U.K., a UBS profit beat and a crypto slump. Here’s what’s moving markets.
Just as England celebrated the lifting of nearly all pandemic-related restrictions, U.S. authorities warned Americans against visiting the U.K., citing a surge in cases that puts even fully vaccinated travelers at risk for contracting and spreading coronavirus variants. With a travel alert of “very high,’’ the U.S. Centers for Disease Control and Prevention advise any travelers to the U.K. should wear masks and observe social distancing. The Biden administration has been deliberating the lifting of a ban on travel from Europe — in light of the overnight decision on the U.K., don’t hold your breath.
Investment strategists are starting to consider a new bearish scenario: the economy has already hit its speed limit. With the ferocious spread of Covid-19’s delta variant and central banks already talking about tighter monetary policy to bring inflation under control, there’s a sense of worry that financial markets have become too optimistic. The shift in narrative is evident across assets: the S&P 500 sank the most since May on Monday and benchmark Treasury yields tumbled to the lowest level since February. Stocks slipped again in Asia Tuesday but the fall was orderly.
As the first major European bank to post results this mid-year earnings season, UBS just announced better-than-expected second quarter profit. It added $25 billion in new fee-generating assets in wealth management, taking advantage of rising client activity and soaring markets. In the current quarter, the bank expects its revenue to be influenced by seasonal factors including lower client activity. Nine months into his tenure, Chief Executive Officer Ralph Hamers is benefiting from bouyant markets and client demand after the lender’s pivot away from investment banking to the more stable business of wealth management.
A selloff in Bitcoin accelerated Tuesday, pushing it below $30,000 for the first time in about a month. Other virtual currencies also retreated, including Ether and meme token Dogecoin. The Bloomberg Galaxy Crypto Index was down about 4%. The retreat comes amid a broader risk-off environment that’s also seen global equities fall due to fears of slowing economic growth and the relentless spread of the delta variant of Covid-19. Some traders had viewed $30,000 as a key support that, if breached, could open the way to more losses.
European stock futures are pointing up as the drop in global stocks, prompted by the spread of the delta variant, moderated in Asian trading. There’s a busy day of potential catalysts in the corporate world, with earnings from Electrolux and Volvo in Europe, along with trading updates from EasyJet, CVS, Anglo American, Remy Cointreau and Ubisoft. In the U.S., Netflix’s second-quarter earnings are the highlight. And Amazon founder Jeff Bezos is heading to space, as he blasts off today onboard his Blue Origin spacecraft.
What We’ve Been Reading
This is what’s caught our eye over the past 24 hours.
And finally, here’s what Cormac Mullen is interested in this morning
With most eyes on benchmark Treasuries Monday as yields tumbled ever closer to 1%, it may have gone unnoticed that their real counterparts came within a hair’s breadth of a record low. The yield on 10-year inflation-protected securities slumped as much as seven basis points to minus 1.12%, just a smidgen above the minus 1.124% they reached in January. While falling real yields have been a boon to stocks in recent years, this time equities tumbled too, a sign that traders are interpreting their decline as an indicator of a stalling recovery. Low real yields will likely weigh on the relative attractiveness of American assets and if you believe the bond market’s message that we have reached peak growth, that would suggest there is more pressure to come on the U.S. stock market. The S&P 500 is still only 3% off its all-time high — not even at the half-way point of a technical correction.
Cormac Mullen is a cross-asset reporter and editor for Bloomberg News in Tokyo.
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— With assistance by Cormac Mullen, and Gearoid Reidy