European markets kicked off the week on a subdued note, with investors weighing the potential economic effects from the Delta coronavirus variant and awaiting a big week on the economic and corporate fronts.
The region-wide Stoxx 600 was up 0.2 per cent. Germany’s Dax index rose a similar amount, while France’s Cac 40 fell about 0.2 per cent. London’s FTSE 100 was down 0.3 per cent in morning trading. Futures tracking the US S&P 500 index were little changed, indicating the blue-chip index is set to open near the record closing high it set on Friday.
Despite the generally muted trading on Monday, the rapid spread of the Delta variant had caught investors’ attention, said Salman Baig, portfolio manager at Unigestion. The strain already accounts for the majority of new cases in many European countries and is driving infection rates up to their highest level for months.
While vaccination programmes have helped break the link between infections and serious illness and deaths, any renewed social curbs would place fresh pressure on economies only beginning to recover from the Covid-19 crisis, analysts say.
Beyond the virus, investors are expected to pay close attention to a report on US consumer prices, due out on Tuesday, which is expected to show that inflation has remained hot in America due to supply chain issues, elevated commodities prices and a bounceback in the broader economy from the depths of the pandemic a year ago.
Baig said the spectre of a sustained period of high inflation was “something we’ve been concerned about for many months now”. Still, many economists expect the recent surge in US price growth will eventually fade, relieving pressure on the Federal Reserve to tighten monetary policy sooner than expected.
Eyes will also be fixed on earnings season on Wall Street this week, which begins on Tuesday with JPMorgan Chase and Goldman Sachs reporting their results. Analysts say earnings for companies on the S&P 500 index surged more than 60 per cent in the second quarter from the same time last year. It would mark the second-straight quarter of sharp profit increases, a sign America’s corporate giants are recovering swiftly from the pandemic.
“By and large the results should be very good, but one thing we tend to look at is asymmetry of market action,” said Baig. “If firms that miss on their earnings are punished more than those who beat them are rewarded, [the market is being] overly optimistic and sentiment is too high.”
Fed chair Jay Powell will also deliver semi-annual testimony to Congress on Wednesday and Thursday, offering a further opportunity for investors watching for further any change on the US central bank’s direction.
Other central bankers have also drawn attention in recent days. Over the weekend, European Central Bank president Christine Lagarde said that the upcoming session of the ECB governing council on July 22 would have “some interesting variations and changes”.