- Fear of new variants affects global markets
- Biggest European volatility jump since February 2020
- European banks fell more than 5% at one point
- STOXX 600 makes up for some losses, now 2.4% lower
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ANOTHER COVID-19 FRIDAY AND THAT MARCH 2020 FEELING (1015 GMT)
Last Friday was a particularly dramatic day for the markets, as the Austrian lockdown pushed the euro, euro-zone yields and banking stocks sharply down.
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The current market fear about the new variant is much, much worse.
The volatility meter for European equities has made its highest jump since February 2020 and the market crash of COVID-19, as you can see below:
European banks have always been the ultimate game in the pandemic crisis and what the sector’s stocks have to say today is pretty ugly.
This is the index’s worst decline since September 2020, and as you can see below, declines of more than 5% are clearly associated with the worst of the COVID-19-induced market turmoil in 2020:
As noted in a previous blog post, some travel stocks were back to levels unseen since last year, but in the grand scheme of things, the STOXX 600 is only about 5% off its all-time high and 75% above the March 2020 lows.
Whether today is just another bump in the road or the start of something uglier remains to be seen.
SOME TRAVEL STOCKS BACK TO NOVEMBER 2020 LOWS (0908 GMT)
The new virus variant is causing jitters in the financial markets, causing European equities to fall, while pandemic-prone stocks lead to losses.
The Stoxx 600 Index (.STOXX) fell 2.9%, while the Travel & Leisure Stock Index (.SXTP) fell 4.6% to its September low.
Some stocks in travel companies, such as British Airways owner IAG (ICAG.L), Lufthansa (LHAG.DE), Tui, hit lows not seen since November 9, 2020, when the vaccine’s breakthrough was announced.
The Oil and Gas Stock Index (.SXEP) is down 4.7% as crude oil prices plummeted on concerns over the pandemic and oil surplus.
Banks have been hit hard as bond yields fall, while markets are slashing expectations for the pace of potential rate hikes in the United States. The bank’s Stoxx Index (.SX7P) fell by 4.9%.
Raymond James analysts wonder if this could turn out to be yet another “Covid scare”, but they also recall that British and Israeli authorities are taking the news seriously enough to ban flights from the region effective today.
They add that risky assets were already nervous in response to rising inflationary pressures and some hawkish commentary from central banks.
IT LOOKS LIKE A BLACK FRIDAY (0833 GMT)
COVID-19, a concern that investors had pushed onto their list of top concerns in recent months, has risen back to number one as a new variant spreads across South Africa.
Asian equities outside Japan are down more than 2%, European and US stock futures are down sharply, the price of oil is down nearly 3.5%, the safe-haven yen is up about three-quarters percent and US Treasury yields are down nearly 10 basis points .
Thin liquidity after Thursday’s US Thanksgiving Day is likely to exacerbate price movements, but there’s little doubt that overnight headlines took markets by surprise on Friday.
Little is known about the variant, which was detected in South Africa, Botswana and Hong Kong, but scientists believe it has an unusual combination of mutations and may be able to evade immune responses or make it more transmissible. read more
The news comes as Europe is already grappling with a resurgent COVID-19 outbreak, leading to new restrictions that add to uncertainty about the near-term economic outlook.
This poses a new challenge for central banks such as the European Central Bank, which is just beginning to recognize that an inflation spike is lasting longer than expected.
And besides the latest COVID headlines, there are other reasons for unease, some warn: the general surge in Fed expectations about the rate hike, Ukraine-Russia tensions that have wider geopolitical ramifications and a real estate-led slowdown. in China.
In emerging markets, the spotlight is shifting from Turkey to South Africa for the time being, as the rand breaks through the 16.00 dollar level for the first time this year.
Key developments that should give the markets more direction on Friday:
– ECB Speakers: ECB President Christine Lagarde
– BOE chief economist Huw Pill speaks
– Q4 Canadian Business Conditions Survey
– Japanese Prime Minister Kishida urges companies to raise wages by 3% or more read more
– China Evergrande football stadium taken over by government -source read more
– China asks Didi to pull out of US over data security fears – Bloomberg News read more
A NEW VIRUS VARIANT INCLUDES EUROPEAN STOCKS (0721 GMT)
European equities are expected to open sharply lower on the back of a rush to safety and a massive decline in risk assets that are spreading around the world amid heightened concerns about the virus. Stock futures predict a drop of more than 2% when opening trades. read more
South African scientists have discovered a COVID-19 variant with a “very unusual constellation” of mutations, which could help it evade the body’s immune response and make vaccines less effective. read more
US Treasury yields are down 9 basis points and Fed fund futures rose as markets slackened expectations on the pace of potential rate hikes in the United States.
Meanwhile, Brent crude futures are falling below $80 a barrel amid concerns about the pandemic and oil surplus.
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