Wall Street staunches sell-off despite COVID variant fears

NEW YORK (Reuters) – Wall Street reeled back on Tuesday from a sell-off and yields on other safe havens including U.S. Treasuries bounced back from new lows even as investors worried about the impact of a resurgence in COVID-19, spurred by the Delta variant.

FILE PHOTO: A street sign for Wall Street is seen outside the New York Stock Exchange (NYSE) in New York City, New York, U.S., July 19, 2021. REUTERS/Andrew Kelly

Wall Street’s main indexes rose in early trading, with the Dow recovering from its worst day in nine months. Yields on U.S. 10-year Treasuries rose off a new five-month low, reversing a 10 basis-point drop from the previous session, the biggest since February.

“The narrative from yesterday that bled through the weekend was a little bit of a risk-off scenario around the increasing COVID cases,” said Charlie Ripley, senior investment strategist for Allianz Investment Management. “I don’t think it’s so much that investors are worried about the cases themselves. It’s government officials and their reaction, where we could get into a situation where restrictive measures get put in place again, that dampens growth over the long run.

“We continue to see strong earnings. That’s helping the equity market. On the bond side, we see things move a little too far, too fast but we see that reversing now,” Ripley added.

By late morning, the Dow Jones Industrial Average rose 513.87 points, or 1.51%, to 34,475.91, the S&P 500 gained 54.76 points, or 1.29%, to 4,313.25 and the Nasdaq Composite added 165.35 points, or 1.16%, to 14,440.34.

After their worst sell-off this year on Monday, Europe’s STOXX 600 added 0.2%, down from highs earlier in the session due to positive corporate earnings and production updates from miners.

“I fear the equity selling isn’t over yet, and if I am right, Europe will be the worst place to be, given the index is value dominated – and thus very cyclical,” said James Athey, investment director at Aberdeen Standard Investments.

MSCI’s gauge of stocks across the globe gained 0.75%.

Riskier assets globally have come under pressure recently as many countries struggle to contain the outbreak of the fast-spreading Delta virus variant, raising fears that further lockdowns and other restrictions could upend the worldwide economic recovery.

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A senior aide to U.S. House of Representatives Speaker Nancy Pelosi tested positive for COVID-19, Pelosi aide Drew Hammill said on Tuesday.

In a separate gauge of investor risk appetite, bitcoin fell below $30,000 for the first time since June 22.

In a sign of lingering fears of the spread of the Delta variant, the Aussie dollar/Swiss franc cross, a favorite proxy in currency markets for economic recovery bets, fell to its lowest level since December 2020 at 0.6714 francs, according to Refinitiv data.

The U.S. dollar rose to a three-month peak on Tuesday as investors continued to flee to safety in the face of anxiety about the more contagious Delta variant.

By mid-morning, the dollar index, a measure of its value against six major currencies, rose 0.2%, after hitting the three-month high earlier in the session.

In Europe, Germany’s 10-year yield, the benchmark for the euro zone, briefly fell to -0.427%, breaching a new lowest level since February.

Graphic: Dividend yield vs bond yield:

Oil prices turned positive after falling more than $1 earlier in the session due to continued worries about future demand and after an OPEC+ agreement to increase supply.

U.S. crude recently rose 0.42% to $66.70 per barrel and Brent was at $68.96, up 0.5% on the day.

Spot gold dropped 0.2% to $1,808.61 an ounce.

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