Spiking COVID-19 cases put damper on risk sentiment

US stocks tumbled on Monday as concerns over rising COVID cases weighed on recovery optimism; also adding to the headwinds were increasing US-China tensions with the latter blamed for a hack on a Microsoft Exchange email server. The DOW slumped the most, shedding 2.09% while the S&P and the NASDAQ slid 1.59% and 1.06% respectively. Yield on 10Y USTs fell 10bps to 1.1888%, the lowest since February.

The UK’s “Freedom Day’ kicked off on a whimper with 41,000 new cases recorded on Monday prompting a travel warning by the US. The full reopening of the economy also coincided with a slump in stocks with the FTSE 100 shedding 2.34% as global risk sentiment soured over COVID resurgence. The pound closed weaker at $1.3675 while yield on 10Y UKTs was 6bps lower at 0.560%.

Asian stocks were lower on Tuesday, weighed down by the prevailing negative sentiment amid a flare-up of COVID cases. The HANG SENG led the slide down 0.91% late in the session while the NIKKEI and the ASX shed 0.96% and 0.46% respectively. The CSI was comparatively muted even as tensions with US started notching higher; it recovered from a 0.89% loss earlier in the session to trade about 0.10% lower as the session drew to a close.

Oil sank 6.8% closing at $68.62/barrel on Monday with the turn in global risk sentiment outweighing the resolution on production quotas agreed over the weekend with the UAE. Brent opened about flat from Friday’s closing levels before falling away as risk assets withered in the face of dampening sentiment with a flare-up in COVID cases even in economies that have made significant vaccination progress. The benchmark opens on a steady but firmer note on Tuesday trading in the low $69s at London open.

Fitch upgraded the rating on IVYCST bonds to BB- on Monday noting that concerns over political risk have waned after the peaceful March 2021 parliamentary elections. The announcement by former president Laurent Gbagbo – back in the country after acquittal by the ICC over his role in the 2011 civil war – to participate in dialogue over national reconciliation also added to cooling political tensions. Outlook was however lowered from positive to stable during the same review as vaccination progress remains low. The report helped IVYCST 31s hold up comparatively better than regional peers, widening about 3bps on the day.