* New variant fears hit global markets
* Biggest European volatility jump since Feb 2020
* European banks fall over 5%
* STOXX 600 recoups some losses, now down 2.6%
Nov 26 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at markets.research@thomsonreuters.com
NEW VARIANT: A BACKDOOR FOR STAGFLATION? (1148 GMT)
We've been rounding up comments on the market turmoil caused
by the new variant and one crucial point made by Swissquote
analyst Ipek Ozkardeskaya is that the policy response to a new
crisis would be different or have a different impact than in
March 2020.
The game changer is that back then, inflation was the least
of policy makers' concerns, now, not so much so.
"The problem is that they can’t use the same tools to fight
back inflation and the economic slowdown", Ozkardeskaya wrote.
Indeed, slashing rates and embarking into another of QE to
prop up growth isn't an obvious choice if inflation is already
running at a decade high.
"The choice will be difficult", she warned and indeed, a new
variant forcing the world into lockdown could indeed be an ideal
backdoor for inflation to make its way into the world.
Anyhow, other useful comments on the market turmoil today
despite the uncertainty about the seriousness of the new variant
include:
* "You shoot first and ask questions later when this sort of
news erupts" - Ray Attrill, Head Of FX Strategy at NAB
* "I do not pretend to be a learned armchair virologist, but
viruses do not mutate to become less effective, so assuming the
worst is probably the safe option for now" - Jeffrey Halley,
Senior Market Analyst at OANDA
* "This is not to be anti-vaccine, but to stress that in a
'war' against a coronavirus, both sides can and do change
strategy" - Michael Every Global Strategist ay Rabobank
(Julien Ponthus)
*****
ANOTHER COVID-19 FRIDAY AND THAT MARCH 2020 FEELING (1015
GMT)
Last Friday was a particularly dramatic day on markets with
the Austrian lockdown sending the euro, euro zone yields and
banking stocks sharply lower.
Today's market angst about the new variant is much, much
worse.
The gauge of volatility for European stocks has made its
highest jump since February 2020 and the COVID-19 market crash
as you can see below:
European banks have always been the ultimate play on the
pandemic crisis and what the sector's stocks have to say today
is quite ugly.
This is the worst fall of the index since September 2020 and
as you can see below, falls of over 5% are clearly associated
with the worst of the COVID-19 triggered market turmoil in 2020:
As noted earlier in an earlier 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% away from its
record high and 75% above March 2020 lows.
Whether today is just another bump on the road or the start
of something uglier remains to be seen.
(Julien Ponthus)
*****
SOME TRAVEL STOCKS BACK TO NOVEMBER 2020 LOWS (0908 GMT)
The new virus variant sends jitters across financial
markets, driving European stocks down, with pandemic sensitive
stocks leading losses.
The Stoxx 600 index is down 2.9%, with travel and
leisure stock index falling 4.6% to its September low.
Some stocks in travel companies, such as British Airways
owner IAG, Lufthansa, Tui, hit lows
close to levels not seen since November 9 2020, when the vaccine
breakthrough was announced.
The oil and gas stock index is down 4.7% as crude
prices plunged amid concerns about the pandemic and oil surplus.
Banks are badly hit as bond yields are falling while markets
pare back expectations for the pace of potential rate hikes in
the United States. The bank Stoxx index is down 4.9%.
Analysts from Raymond James wonder if this may yet prove to
be yet another "Covid scare", but they also recall that UK and
Israeli authorities are taking the news seriously enough to ban
flights from the region, effective from today.
They add risk assets were already jittery in response to
rising inflationary pressures and some hawkish commentary from
central banks.
(Stefano Rebaudo)
****
IT'S LOOKING LIKE A BLACK FRIDAY (0833 GMT)
COVID-19, a worry that investors had pushed down their list
of top concerns in recent months, has soared back up to the
number one spot as a new variant spreads across South Africa.
Asia stocks outside Japan slid over 2%, Europe and U.S.
stock futures are down sharply, oil prices drops almost 3.5%,
the safe-haven yen is up around three-quarters of a percent, and
U.S. Treasury yields are down almost 10 basis points.
Thin liquidity following Thursday's U.S. Thanksgiving Day
holiday likely exacerbates price moves for sure, but there's
little doubt overnight headlines have taken markets by surprise
on Friday.
Little is known of the variant, detected in South Africa,
Botswana and Hong Kong, but scientists reckon it has an unusual
combination of mutations and may be able to evade immune
responses or make it more transmissible.
The news comes as Europe already battles a resurgent
COVID-19 outbreak, triggering fresh restrictions that raise
uncertainty over the near-term economic outlook.
That poses a fresh challenge for central banks such as the
European Central Bank, which has just started to acknowledge
that a push in inflation is lasting longer than anticipated.
And on top of the latest COVID headlines, there are other
reasons for unease, some warn -- the general lift up in Fed rate
hike expectations, Ukraine/Russia tensions that has broader
geopolitical ramifications and a property-led slowdown in China.
In emerging markets, the spotlight passes from Turkey to
South Africa for now as the rand breaches the 16.00 level to the
dollar for the first time this year.
Key developments that should provide more direction to
markets on Friday:
- ECB speakers: ECB President Christine Lagarde
- BOE chief economist Huw Pill speaks
- Q4 Canadian Survey on Business Conditions
- Japan PM Kishida urges companies to raise wages by 3% or more
- China Evergrande soccer stadium taken over by government
-source
- China asks Didi to delist from U.S. on data security fears -
Bloomberg News
(Dhara Ranasinghe)
*****
A NEW VIRUS VARIANT HITS EUROPEAN STOCKS (0721 GMT)
European stocks are set to open sharply lower as a rush to
safety and a massive drop in risk assets spread across the globe
on more virus concerns. Stock futures predict a more than 2%
drop at opening trades.
South African scientists have detected 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.
U.S. Treasury yields drop 9 basis points, and Fed funds
futures rallied as markets pare back expectations for the pace
of potential rate hikes in the United States.
Meanwhile Brent crude futures fall below $80 a barrel, amid
concerns about the pandemic and oil surplus.
(Stefano Rebaudo)
*****