Europe weighed down by Covid jitters and tightening travel restrictions

After a cautious session in Asia, European stocks are edging lower on inflation concerns and as Covid jitters return, threatening to derail the tourist season.

Stocks across Asia kicked off trading for the week on the back foot amid a spike in Covid cases across the region. In Australia, rising Covid cases of the highly transmissible Delta variant have sent Sydney back into lockdown. Meanwhile, Indonesia, Malaysia and Thailand have also seen pandemic restrictions tighten again, which dragged on sentiment in the session.

Travel stocks drop

In Europe, the rapid spread of the highly contagious Delta variant is looming over the start of the tourist period. As a result, European leaders agreed to step up coordination of travel restrictions following a warning from German Chancellor Angela Merkel. While no changes in rules were agreed, the statement could pave the way for more countries to follow Germany’s lead and prevent UK tourists from travelling to Europe this summer. This would be a severe blow to airlines and travel and tourism stocks, which are trading sharply lower today.

British Airways owner AIG, Rolls Royce, Whitbread and InterContinental Hotels Group are dominating the lower reaches of the UK index.

Economies that rely heavily on the tourism industry are also feeling the pressure from these developments. The Spanish Ibex trades -1.2%, underperforming its European peers on the prospect of another missed summer season and the knock-on economic impact that could have. So far, Spain has pushed back on banning British tourists, which account for 25% of international tourism to the peninsula.

Inflation woes linger

Inflation concerns continue to haunt the markets. Data from China over the weekend revealed that profit growth in Chinese factories slowed again in May as surging raw material prices pressured margins and weighed on factory activity.

The data comes after Friday’s US PCE inflation numbers revealed that prices rose by 3.4%, the highest rate in three decades. With no high-impacting US data due today, investors will be focusing on Fed speakers for further clues over the Reserve’s position and where monetary policy could go from here.

FX – Pound rebounds as easing of final Covid restrictions is on track

The pound is rebounding, paring some of last week’s BoE-inspired losses and retaking 1.39. Sajid Javid, the new UK Health Minister, is expected to say to the Commons today that the UK remains on track to lift final Covid restrictions on 19 July, despite the Delta variant. The final easing of restrictions was delayed as the government awaited further data to confirm whether the vaccine had broken the link between cases and deaths. The softer tone surrounding the US dollar is also giving the pound a helping hand.

For a look at all of today’s economic events, please check out our economic calendar at www.marketpulse.com/economic-events/

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