LONDON/HONG KONG: European shares bounced back from their worst day of the year on Tuesday, but German bond yields slipped to fresh five-month lows as a reminder that investors remained worried the spread of the Delta coronavirus variant could derail the economic recovery.
Europe's STOXX 600 added 1per cent, boosted by a clutch of positive corporate earnings and production updates from miners, while in the U.S. e-mini futures for the S&P 500 index were up 0.6per cent.
The positive moves followed more selling in Asia, with MSCI's gauge of Asia Pacific stocks outside Japan falling 0.7per cent and Japan's Nikkei 225 hitting a six-month low, down nearly 1per cent.
China deleveraging risks hurt property stocks and the broader market for a second day, causing a plunge in shares of heavily indebted developer China Evergrande Group. The Hang Seng Index dropped 0.8per cent while China's blue chip CSI300 Index was 0.1per cent lower.
MSCI's broadest gauge of global shares was 0.5per cent lower, extending its longest-losing streak in nearly 18 months.
"The reality is that this price action has become somewhat self-fulfilling as the myopic investor sentiment and positioning are forced to re-assess," said James Athey, investment director at Aberdeen Standard Investments.
"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."
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.
Stocks on Wall Street fell as much as 2per cent on Monday, with the Dow posting its worst day in nine months as COVID-19 deaths increased in the United States.
In a separate gauge of investor risk appetite, bitcoin fell below US$30,000 for the first time since June 22.
"Despite the vaccine rollout, markets do not appear to be learning to live with COVID-19," ANZ analysts wrote in a note to clients.
"Sentiment appears to have shifted, at least for the moment, to a persuasion that growth and earnings expectations may be overdone," they said, noting that risk-averse investors were bailing out of commodities.
In a sign of lingering fears of the spread of the Delta variant, the Aussie dollar/Swiss franc cross, a favourite proxy in currency markets for economic recovery bets, fell to its lowest level since December 2020 at 0.6714 francs, according to Refinitiv data.
Against a basket of its rivals, the U.S. dollar strengthened widely on Tuesday and was close to an early-April high of 93.041 hit in the previous session.
U.S. yields turned higher following Monday's searing rally. The 10-year yield rose to 1.217per cent from a close of 1.181per cent, a level last seen in February.
However, while the U.S. yield curve steepened slightly, the spread between the U.S. 10-year and 2-year yield remained near February lows, signalling investor doubts about the growth outlook.
In Europe, Germany's 10-year yield, the benchmark for the bloc, briefly fell to -0.403per cent, breaching a new lowest level since February and was down around 1 basis point to -0.398per cent, as of 0733 GMT.
Oil prices stabilised after slumping around 7per cent in the previous session due to worries about future demand and after an OPEC+ agreement to increase supply.
Brent crude gained 0.7per cent to US$69.11 a barrel. The U.S. crude contract for August delivery, which expires later on Tuesday, was up 0.9per cent at US$66.64 a barrel.
Spot gold was flat at US$1,812.16 per ounce after hitting a one-week low of US$1,794.06 in the previous session.
(Reporting by Tom Arnold and Kane Wu; additional reporting by Andrew Galbraith; Editing by Michael Perry and Jacqueline Wong)