US stocks posted their biggest decline on Thursday amid growing concern that the continuous spread of COVID-19 will reverse growth expectations and nullify popular reflation deals, especially since the global coronavirus death toll has already surpassed more than 4 million. The World Health Organization (WHO) has already called for caution regarding other COVID-19 variants.
To be more specific, the S&P 500 fell more than 1%, as economically sensitive sectors and banks showed a sharp decline, in relation to the drop of 30-year US Treasury bonds below 1.90%.
Obviously, investors are starting to worry that the rapid spread of the delta variant will slow economic growth, which will delay the return to normal levels.
In line with this, Art Hogan, Chief Market Strategist at National Securities, said that instead of inflation being transitory, many now fear that it is recovery that will be short-lived.
But of course, one key factor that will influence growth is the central banks' support programs. US, for example, is already considering reducing their monthly bond purchases, while the Eurozone is poised to extend its ultra-soft monetary policy. According to a survey, ECB members raised their inflation target to 2% and said they would allow moderate overshoots.
Kim Forrest, founder and CIO of Bokeh Capital Partners, commented on this and said the latest Fed minutes hinted at a possible reduction in bond purchases, despite lower interest rate on 10-year bonds. This indicates higher demand, but also insinuates that bond specialists are ignoring the Fed's planned actions.
Other key events this week are:
- G20 meeting (Friday);
- data on China PPI and CPI.
