Dow Cracks 700 points as Crude also retreats

It looked like a panic-driven sell-off in global markets on 19 July. The Dow Jones cracked 725 points to 33,962 while the NASDAQ fell 152 points to 14,275. If Dow fell 2%, the fall in European markets on 19 July was much sharper. The London-based FTSE fell 2.35%, German DAX fell 2.62% and the French CAC fell 2.54% on Monday. The big driving factor was a sharp spike in COVID cases; what is now referred to as COVID 3.0 or Delta variant.

With the WHO hinting at a return of COVID in a new form and the state of California re-imposing restrictions, fear is returning to haunt the markets. Market experts concur that this fall is not just about COVID fears but also about too much optimistic expectations in indices, already driven higher by liquidity. With the Fed hinting at tightening from mid-2022, the assumptions of this rally are likely to be questioned. On 19 July, even US bellwethers like Apple and Microsoft were down sharply.

Read: Crude Oil at $75

For emerging markets, including India, there is an additional concern on the dollar index front. The Bloomberg Dollar Index has moved up from 89 in early June to 93 in July. That is a sharp strengthening of the US dollar and is one of the reasons explaining the sell-off by FPIs in emerging markets. That pressure is visible across EMs.

Finally, we turn to the sharp fall in crude oil. After recently scaling a high of $77/bbl, Brent Crude has given up chunk of the rally to trade in the range of $68.00-$68.50/bbl. The fears of COVID 3.0 has raised the spectre of another global slowdown in oil demand. OPEC supply hikes from August could only depress oil prices further.