Flash PMI's in focus, Covid caution in the air?

Definitely some caution in the air at the moment.

On Wednesday, bonds were selling off and there was a clear preference for energy and financial stocks.

Yesterday, energy stocks didn't keep pace with the oil rally, and financials were the worst performers. The Russell 2K struggled (RUT closed down 1.55%) and bonds saw demand again, although this retreated into the close.

Sector ETF view of the session 👇

The picture in Asia is also a little downbeat this morning, as Chinese equities struggle (Japan closed)

The Covid 'crisis' phase is over, but it's too soon to shake it off completely.

We know the vaccines protect against serious illness and death. The worst side effects that are reported are rare enough not to concern regulators.

As much as everyone wants to move on from Covid now, there are still a lot of countries with low vaccination rates and even in the most vaxxed countries, there is caution over rising case numbers.

Current unemployment levels in the U.S. are proving sticky too, with yesterday's initial claims increasing.

One higher weekly reading isn't anything too concerning (and continuing claims did fall by 29k), but it's another long-Covid economic symptom.

Some Covid headlines via Newsquawk/News Feed

• Merkel said yesterday that "we must presume that virus cases can double in two weeks".

• Germany intends to list Spain and the Netherlands as COVID-19 high incidence areas on Friday, according to Funke MedienGruppe.

• Italian Health Minister said the government is extending the state of emergency until December 31st and will link virus curbs to hospital occupancy.

• US CDC Director Walensky said the seven-day average of new cases rose 53% and that some hospitals are reaching capacity in some areas of the US.

• LA County reports 2,767 new COVID-19 cases which was an increase of 80% vs a week ago, According to LA Times

• Australia's New South Wales reports 136 new locally acquired COVID-19 cases, while State Premier says will not be able to lift Sydney restriction on July 30th and that situation for some parts of the city considered as a national emergency

• New South Wales Premier states crisis cabinet met this morning on tightening restrictions in southwestern Sydney.

• New Zealand PM Ardern confirms to suspend quarantine-free travel with Australia for a minimum of eight weeks

• China's Nanjing raised Lukou region to a high-risk area due to a COVID-19 outbreak

• Tokyo 2020 states three more athletes tested positive for COVID-19 and that the overall number of Olympic-related cases increased by 19 to a total of 106

• Philippines government added Malaysia and Thailand to its travel ban in an effort to prevent spread of the Delta variant

• Taiwan government says to lower COVID-19 alert level

For most countries the political balance hasn't yet tipped in favour of lowering restrictions and it's proving difficult to fully shake the virus curbs.

Even in the U.K. the 'pingdemic' is dragging on the economy by forcing workers to self-isolate.

The government has responded by moving to daily testing in key industries now, but the policy focus is still on transmission rather than serious illness 👇

Australia's recovery will definitely be derailed by the restrictions. The only question is how long for...

China's deleveraging is another lurking risk. This headline was repeated today:

This has been happening all year, but the timing seems more pointed when you consider what happened with Evergrande and HK banks halting mortgages this week.

And what a headline this would be if it turned out to be true...

Wouldn't do much for risk appetite though. 😬

Main data today is the flash PMI's.

Australia's services reading of 44.2 showed the lockdown impact 👇👇👇

European equities are called higher on the open too