Renewed Covid Concerns May Lead To Initial Sell-Off On Wall Street

The major U.S. index futures are currently pointing to a sharply lower open on Monday, with stocks likely to extend the pullback seen over the course of the previous session.

Concerns about a resurgence of the coronavirus are likely to weigh on Wall Street, as the delta variant contributes to a spike in infections in the U.S.

According to data from the CDC, the 7-day average of Covid-19 cases in the U.S. has jumped to nearly 30,000 after falling as low as 11,455 a month ago.

The renewed virus concerns have led to significant pre-market weakness among companies hit hardest by the pandemic such as cruise operators and airlines.

Energy stocks are also moving sharply lower in pre-market trading, as the price of crude oil plunges following news OPEC and its allies have agreed to steadily end production cuts by September 2022.

Stocks moved mostly lower over the course of the trading session on Friday after failing to sustain an early move to the upside. The major averages pulled back well off their initial highs and slid firmly into negative territory.

The major averages ended the session just off their worst levels of the day. The Dow slumped 299.17 points or 0.9 percent to 34,687.85, the Nasdaq slid 115.90 points or 0.8 percent to 14,427.24 and the S&P 500 fell 32.87 points or 0.8 percent to 4,327.16.

For the week, the tech-heavy Nasdaq tumbled by 1.9 percent, the S&P 500 slumped by 1 percent and the Dow decreased by 0.5 percent.

The initial strength on Wall Street came after the Commerce Department released a report showing an unexpected increase in retail sales in the month of June.

The Commerce Department said retail sales climbed by 0.6 percent in June after plunging by a revised 1.7 percent in May.

The rebound surprised economists, who had expected retail sales to fall by 0.4 percent compared to the 1.3 percent slump originally reported for the previous month.

Excluding a steep drop in sales by motor vehicle and parts dealers, retail sales jumped by an even stronger 1.3 percent in June following a revised 0.9 percent decrease in May.

Economists had been expecting ex-auto sales to increase by 0.4 percent compared to the 0.7 percent drop originally reported for the previous month.

However, stocks came under pressure after a separate report from the University of Michigan showed an unexpected slump in consumer sentiment amid concerns about inflation.

The report showed the consumer sentiment index slid to 80.8 in July from 85.5 in June. The decrease surprised economists, who had expected the index to inch up to 86.5.

“Rather than job creation, halting and reversing an accelerating inflation rate has now become a top concern,” said Surveys of Consumers chief economist Richard Curtin, noting that inflation has put added pressure on living standards and caused postponement of large discretionary purchases.

Steel stocks moved sharply lower over the course of the trading session, dragging the NYSE Arca Steel Index down by 3.2 percent.

Substantial weakness was also visible among gold stocks, as reflected by the 3 percent slump by the NYSE Arca Gold Bugs Index. The weakness in the gold sector came amid a pullback by the price of the precious metal.

Energy stocks also saw considerable weakness on the day even though the price of crude oil closed modestly higher.

Airline, semiconductor and computer hardware stocks also showed notable moves to the downside, while some strength was visible among utilities stocks.

Commodity, Currency Markets

Crude oil futures are tumbling $2.64 to $69.17 barrel after inching up $0.16 to $71.81 a barrel last Friday. Meanwhile, after sliding $14 to $1,815 an ounce in the previous session, gold futures are slumping $19.40 to $1,795.60 an ounce.

On the currency front, the U.S. dollar is trading at 109.49 yen versus the 110.07 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.1773 compared to last Friday’s $1.806.

Asia

The major Asian indexes closed in the red on Monday, as renewed virus fears, anxiety over stubborn inflation and concerns over the resilience of the economic recovery impacted investor sentiment across the region.

China’s Shanghai Composite Index closed near the flat line, declining by just 0.18 points or less than a tenth of a percent to close trade at 3,539.12. The People’s Bank of China’s rate decision is due on Tuesday, with markets expecting the status quo to continue.

Japan’s Nikkei 225 Index closed at 27,652.74, down 350.34 points or 1.3 percent, for the fourth day of trading declines as renewed virus fears gripped markets ahead of the Tokyo Olympics. Anxiety ahead of Tuesday’s release of June’s inflation numbers also impacted sentiment.

Despite the sea of red, Chugai Pharmaceutical Co. gained 2 percent and Eisai Co. moved up 1.2 percent.

Chemical company Showa Denko K.K. declined by 5.3 percent, while Ebara Corp., Tokai Carbon, and Sumco Corp. all dropped more than 4 percent.

The U.S. dollar-yen pair hovered near 109.8 levels in the backdrop of a worsening domestic coronavirus situation and a strengthening dollar trajectory.

Hong Kong’s Hang Seng Index shed 514.90 points or 1.8 percent to close at 27,489.78. The day’s high was at 27,786.54 and low was at 27,397.29.

The KOSPI of the Korea Exchange shed 32.87 points or 1 percent to close trade at 3244.04, pulled down mostly by tech stocks as inflation and infection worries resumed.

Australia’s S&P/ASX200 Index dropped 62.10 points or 0.9 percent to close at 7,286.00. The index now is 1.6 percent below its 52-week high amidst an anxious wait for the RBA’s meeting minutes on Tuesday and retail sales indicators on Wednesday.

Deterra Royalties bucked the bearish trend to rise 4.1 percent and so did medical device company Polynovo, which gained 3.4 percent.

Exploration specialist Chalice Mining declined 9.1 percent and gold miner Evolution Mining corrected 8.5 percent.

Europe

A sea of red has descended on the European stock markets on Monday, as renewed fears of the spread of the delta variant drained the euphoria in the major European bourses.

Travel and leisure stocks are bearing the brunt of the feared fatigue in virus fights, while energy stocks are under pressure against a backdrop of an oversupply concerns-driven slump in crude oil prices.

The U.K.’s FTSE 100 Index has tumbled 172.40 points or 2.5 percent to 6,835.69 Central bank comments on a sooner than expected withdrawal of stimulus to combat mounting inflation, fears of the delta variant derailing the economic recovery as well as the slide in energy shares have impacted sentiment.

France’s CAC 40 Index has also plunged 173.20 points or 2.7 percent to 6,286.88 as sentiment remains rather weak on renewed fears of the virus transmission.

Germany’s DAX Index has also plummeted 426.91 points or 2.8 percent to 15,113.40. Sentiment has been impacted by the recent weather disaster as well as concerns over the nascent economic recovery.

The European Central Bank is scheduled to meet on Thursday, and investors are keenly awaiting the central bank’s monetary policy stance and the likely trade-off between inflation and growth.

U.S. Economic Reports

The National Association of Home Builders is scheduled to release its report on homebuilder confidence in the month of July at 10 am ET. The housing market index is expected to inch up to 82 in July from 81 in June.

Stocks In Focus

Shares of Cal-Main Foods (CALM) are moving sharply lower in pre-market trading after the egg producer reported an unexpected fiscal fourth quarter loss on weaker than expected revenues.

Rural lifestyle retailer Tractor Supply (TSCO) is also seeing pre-market weakness despite reporting better than expected second quarter results and raising its full-year guidance.

On the other hand, shares of Five9 (FIVN) are likely to see initial strength after the call center software company agreed to be acquired by Zoom (ZM) in an all-stock transaction valued at approximately $14.7 billion.

Auto retailer AutoNation (AN) may also move to the upside after reporting second quarter results that exceeded analyst estimates on both the top and bottom lines.