[Good Morning Market] "Delta Variant Likely Won't Deliver Major Shock to Market"

Rising Government Bond Yields Despite Delta Variant Spread
Mobility Indicators Recover to Pre-COVID-19 Levels

US Stock Market Rises on Infrastructure Investment Optimism

[Image source=EPA Yonhap News]

[Asia Economy Reporter Minji Lee] As opinions emerge that the Delta variant will not deliver a significant shock to the global economy, the yield on the U.S. 10-year Treasury note is showing an upward trend again. The fact that most U.S. companies are reporting second-quarter earnings exceeding market expectations is also analyzed to have supported the economic recovery trend and influenced the rise in Treasury yields.

Jungwon Kim, Hyundai Motor Securities Researcher: “Despite the spread of the Delta variant, the economic recovery trend remains valid.”

The U.S. 10-year Treasury yield, which had fallen to 1.19% at one point due to concerns over a global economic slowdown caused by the spread of the Delta variant, is now rebounding. Although the Delta variant may delay the pace of economic recovery, it is assessed not to be at a worrisome level. The fact that U.S. companies are reporting strong second-quarter earnings also served as a driving force behind the rebound in Treasury yields. Among companies that recently announced earnings, 88% exceeded consensus expectations, reflecting the rapid pace of economic normalization in the U.S.

Despite the Delta variant, travel demand has not slowed, leading market participants to suggest that there is no need to be overly sensitive to COVID-19 concerns. Moreover, despite the Delta variant, the Atlanta Federal Reserve projected the U.S. second-quarter GDP growth rate at 7.6% through GDPNow. The market seems to be focusing more on the delay in changes to the U.S. Federal Reserve’s monetary policy rather than worrying about economic contraction due to the spread of the Delta variant. From a long-term perspective, the ongoing COVID-19 situation is expected to extend liquidity effects in the stock market and increase expectations for economic recovery improvement.

Sanghyun Park, Hi Investment & Securities Researcher: “Despite the Delta variant, major countries’ mobility indices show no significant fluctuations.”

Although concerns about a resurgence of COVID-19 caused by the Delta variant are spreading, some mobility indices in major advanced countries have recovered to pre-COVID-19 levels, indicating that daily life has not yet been significantly affected. The Google Mobility Report, which is publicly released by Google, examines changes in mobility due to the spread of COVID-19.

Looking at the mobility indices for grocery stores and pharmacies, the U.S., the U.K., and Germany have recovered to pre-COVID-19 levels, and mobility indices for workplaces as well as retail and recreation continue to rebound. In particular, Germany’s mobility indicators show an improving trend.

Considering this improvement in mobility indices, it is judged that the service sector conditions in major advanced countries are not significantly shaken. In fact, according to country-specific forecasts for the July Services PMI index, which is scheduled to be released on the 23rd, Germany’s Services PMI is expected to improve from 60.1 points in June to 60.7 points. The U.S. Services PMI is also expected to remain almost unchanged, from 64.6 points last month to 64.5 points this month.

In conclusion, the economic shock caused by the Delta variant remains limited. As vaccination rates reach a certain level mainly in advanced countries, it seems related to the movement of major governments choosing to coexist with COVID-19 rather than imposing strong mobility restrictions. The U.K. declared a “Freedom Day,” lifting all mobility restrictions despite a resurgence of COVID-19. The recent rebound in the U.S. 10-year Treasury yield, which had sharply dropped to the 1.1% range due to concerns over the Delta variant, is also interpreted as reflecting expectations that the economic impact of the Delta variant may be limited.

Sangyoung Seo, Mirae Asset Securities Researcher: “Infrastructure investment expectations highlighted.”

The U.S. stock market closed higher across all three major indices as expectations for infrastructure investment were highlighted, easing concerns about a peak in the economic cycle. The Dow Jones Industrial Average rose 0.07%, while the Nasdaq and S&P 500 increased by 0.36% and 0.2%, respectively.

On this day, the domestic stock market is expected to be positive, given that the U.S. stock market showed strength centered on large technology stocks announcing earnings next week despite debates over economic and earnings peak-outs and the spread of the Delta variant. Particularly, the inflow of expectations for a re-vote on procedural issues related to infrastructure investment next Monday is also positive. If passed, it is expected that the U.S. economic recovery will continue.

However, concerns rose as Texas Instruments (TI) fell 5.32%, citing that the surge in semiconductor chip demand due to the pandemic may be short-term, and Micron also dropped about 2%. Additionally, Intel declined 0.48%, negatively affected by a decrease in data center sales after market close. Considering this, the domestic stock market is expected to start slightly higher and then move into a stock-specific trading session as selling pressure is absorbed.

This content was produced with the assistance of AI translation services.