Imported Covid strain stifles reopening rebound

Optimism around the reopening of international travel and indoor dining has been short-lived, with airlines, pubs, and restaurants all losing ground on fears around the Indian Covid strain. Precious metals have provided the one area of strength, with gold and silver both pushing sharply higher.

• US kicks off the week on a negative footing as inflation risks remain
• Pubs and airlines suffer as reopening optimism proves fleeting
• Precious metals provide one of the few areas of strength on an uninspiring day

An indecisive European session has given way to an unmistakably negative tone in the US, with the Nasdaq leading the losses. In the UK, concerns over a rise in Covid cases with the Indian variant has some worried over the potential ramifications for the reopening timeline. However, a rise in the US 10-year treasury yield has highlighted that there is still an underlying feeling of optimism that the economic picture will continue to improve over the coming months. Inflation has been the topic of choice over the course of the past week, and a 3.6% PPI reading out of Japan served to further highlight how factories have seen their costs rise over recent months. 

Airlines are on the back foot once again today, with optimism over the reopening of international travel proving short-lived given concerns over the growth of the Indian Covid variant. With Germany classifying the UK as a ‘risk’ area, the spread of this variant could dash hopes that the airlines will be able to reopen additional routes in the coming weeks. Unfortunately, the risks posed by this latest strain also raises questions around those same businesses that have just found reprieve from lockdown restrictions, with pub and restaurant chains all on the back foot despite the resumption of indoor dining. 

Precious metals have provided one area of strength on an otherwise dour day, with silver and gold spiking into multi-month highs. Concerns that rising yields could hinder demand for gold and silver appear to be on the back-foot, with recent volatility in the fixed income space giving the platform for a more convincing move higher for gold and silver. Looking back at the post-2008 period, the outperformance of precious metals in the face of rising yields does highlight the potential for similar strength in the coming months.