What to make of the latest market wobble? If you blinked and missed it, you are in good company. But to recap, Monday was a bit of a horror show.
In its worst trading day of the year, the pan-regional Euro Stoxx 600 index fell 2.3 per cent. The US picked up the baton, sending the S&P 500 sinking by a similar degree before regaining a little poise towards the end of the day.
Oil prices took a 7 per cent hit, only part of which could be explained away by the Opec cartel and its allies nearing a deal to raise output.
Bonds shot higher. Yields on the 10-year benchmark note dropped under 1.18 per cent for the first time since February, down more than 0.1 percentage points on the day. Perhaps most notably, though, the pain for the reflationistas did not stop there; the following day also brought sharp gains in the market’s premier haven asset, cramming yields under 1.13 per cent.
The picture was clear: this was a classic outbreak of nerves puncturing a seemingly relentlessly cheerful, if rather dull, market mood. Finding a satisfying explanation, however, is more tricky.
After-the-fact rationalisation number one is that investors finally woke up to the Delta variant of coronavirus. This makes some instinctive sense: in 2020, it took weeks of devastation in Asia from the initial outbreak of Covid-19 for western investors to take it seriously. It was not until northern Italy shut down in late February of that year that investors ran for safety in earnest. This could be a…