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03 August 21

Asian stocks slip as Delta spread spooks investors

Asian stocks slipped on Tuesday, as the Delta coronavirus variant spread in key markets in the region and put Chinese authorities on high alert, rattling investor confidence.

Trade in Asia faced a weaker lead from Wall Street after investors there considered the impact the increasing number global cases of Delta could have on global economic growth.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.40% in early trading.

Japan’s Nikkei was off 0.85% in early trade.

China’s blue chip index CSI300 shed 0.80% while Hong Kong’s Hang Seng Index fell 0.83%.

Australia’s benchmark index, the S&P/ASX200 is off 0.25%, having reached a record on Monday after Square Inc (NYSE:SQ) announced a $29 billion offer for buy-now-pay-later firm Afterpay Ltd.

The Reserve Bank of Australia is expected to leave rates unchanged at 0.10% when it meets later in the day, but reverse the July bond tapering decision due to the lock downs in Sydney and Brisbane caused by the expanding Delta variant.

Dollar Edges Lower; U.S. Economic Recovery Key

The dollar edged lower Tuesday in tight trading ranges, with traders reluctant to take strong positions ahead of the release of key U.S. employment data at the end of the week.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded marginally lower at 92.028.

USD/JPY dropped 0.1% to 109.14, near to the mid-July low of 109.07, GBP/USD gained 0.1% to 1.3891 and EUR/USD traded 0.1% higher at 1.1875.

The dollar has trended lower since Federal Reserve Chairman Jerome Powell indicated last week that interest rate increases were still a long way away, falling to a low of 91.775 on Friday, the weakest since June 28.

An Institute for Supply Management report on Monday showed July U.S. manufacturing growth slowed for the second straight month, a release that played into Powell’s belief that more economic progress was needed before the central bank started tapering its huge bond-buying program.

Economic data later Tuesday centers around June factory orders, which are forecast to grow 1.0% on the month, slowing from 1.7% growth the previous month.

But all eyes will be on Friday’s official jobs report which will provide some indications of how sustained the U.S. recovery has been in July. Economists are looking for an increase of 900,000 jobs, which would be the biggest increase for 11 months.

China’s Virus Flare-Up Stokes Oil-Demand Fears

China is renewing restrictions and canceling flights as a Covid-19 resurgence in Asia’s top oil consumer sends jitters across the crude market.

Local governments are rushing to close off some cities and townships, while tourists are being turned away from popular sights as authorities seek to halt the fast-spreading delta variant during the peak summer travel season. Flights in and out of Beijing have been canceled, with China National Petroleum Corp. estimating jet fuel consumption will be the hardest hit by the new measures.

“This round of infection could potentially wipe out 5% of short-term oil demand,” Wang Lining, a researcher with CNPC’s Economics and Technology Research Institute, said by phone. The continuing impact on consumption will depend on infection rates and the duration of the resurgence, Wang added.

China has grappled with the odd virus flare-up in the past, but has typically managed to contain the outbreaks, helping to underpin a strong recovery from the pandemic and a broader rebound in oil. However, delta has led to a surge in infections across the globe and renewed lockdowns in some regions, most notably in Southeast Asia, which is crimping fuel consumption.

This latest outbreak has reached nearly half of China’s 32 provinces in just two weeks, and while the overall number of infections is still low, the wide spread indicates that the variant is moving quickly. Residents in Beijing have been told to refrain from leaving the city, while people in Nanjing — the epicenter of the new resurgence — have been placed under lockdown.

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