LONDON MARKET MIDDAY: Red Friday amid fear of new Covid strain

(Alliance News) - The picture for European stock markets was no rosier around midday in London on Friday, as the morning's drastic sell-off showed no sign of abating.

Investors were spooked after the discovery of a new Covid strain which could be far more contagious and may render vaccines less effective.

"European markets have seen most of the gains made in the course of October and November evaporate overnight as investors around the globe react to the new Covid variant that has appeared in South Africa," IG Chief Market Analyst Chris Beauchamp.

"Early reports suggest it spreads quickly and could be much more resistance to existing vaccines. While the situation appears confined to the region for now, markets are scrambling to price in a return of restrictions across the globe, taking their cue from the UK’s travel restrictions and the tighter restrictions imposed in Portugal."

The FTSE 100 dropped 204.15 points, or 2.8% at 7,106.22 midday Friday. The mid-cap FTSE 250 index was 534.69 points, or 2.3%, lower at 22,745.27. The AIM All-Share index was down 1.7% at 1,184.03.

The Cboe UK 100 index was down 2.8% at 704.37. The Cboe 250 was down 2.5% at 20,246.87, and the Cboe Small Companies was 2.1% lower at 14,917.14.

In mainland Europe, the CAC 40 in Paris was down 3.2%, while the DAX 40 in Frankfurt was down 2.5% midday Friday.

AJ Bell Investment Director Russ Mould said: "It's a horrific end to the week for markets and the big question people will ask now is whether this is the catalyst for a full-blown market correction."

Germany and Italy on Friday joined Britain in banning most travel from South Africa as governments scramble to prevent the spread of a new Covid-19 variant with a large number of mutations.

UK officials sounded the alarm on Thursday night over the B.1.1.529 variant, which has the potential to evade immunity built up by vaccination or prior infection.

In a sign of the growing alarm, the EU on separately proposed prohibiting travel from southern Africa.

The EU's executive "will propose, in close coordination with member states, to activate the emergency brake to stop air travel from the southern African region due to the variant of concern B.1.1.529," EU chief Ursula Von der Leyen tweeted Friday.

Britain announced that all flights from South Africa and its neighbours would be prohibited starting 1200 GMT on Friday.

South Africa sharply condemned Britain's decision, saying it was "rushed".

Index futures were pointing to a similarly poor day on Wall Street. The Dow Jones Industrial Average was indicated down 2.2%, the S&P 500 index down 1.7%, and the Nasdaq Composite down 1.0%.

After being shut on Thursday, US markets reopen for a half-day on Friday, closing at 1800 GMT.

"This process is always a noisy and difficult one, and has been exacerbated by the lack of liquidity that is always a feature of markets around Thanksgiving. Already some pockets of strength, or less weakness perhaps, have emerged, with Nasdaq futures holding up better than the rest as investors there hold their nerve, but perhaps some of the early moves today will be reversed if a more optimistic tone prevails into this afternoon and next week," IG's Beauchamp said.

The biggest losers in London were in the embattled travel sector.

British Airways-owner IAG sunk 12%, easyJet 11%, Ryanair 10%, and Wizz Air 8.7%. Tui and Carnival were down 9.8% and 13%, respectively.

Rolls-Royce also was suffering, with its fortunes tied to its airline customers, losing 10%.

Financial stocks were adding to the widespread sell-off, with their performance linked to overall economic activity. Lloyds, owner of the UK's largest mortgage book, shed 5.7%, NatWest, the largest business lender in the country, dropped 5.3%.

Asia-focused HSBC and Standard Chartered fell 4.9% and 6.0%, respectively.

AJ Bell's Mould said: "There is a good chance that the alarming news will make people stay at home to avoid crowds and any possible transmission of the disease. While that might shift some of the shopping to the online channel, it would be disastrous for pubs and restaurants hoping for a good weekend’s trading before we move into December."

As a result, pub chains Mitchells & Butlers and Wetherspoons both lost 2.7%.

Brent oil took a hit over worries of lower global energy demand, trading at USD77.48 a barrel midday Friday, sharply down from USD81.92. London's oil majors were being dragged lower as a result, with BP shares down 6.3% and Shell 'A' and 'B' shares both down 4.8%.

Sterling was quoted at USD1.3335 midday Friday, higher than USD1.3321 at the London equities close on Thursday. The euro traded at USD1.1286 midday Friday, higher on USD1.1211 late Thursday.

The safe-haven yen and gold were seeing a bump.

Against the yen, the dollar fell to JPY113.86 from JPY115.34 late Thursday in London. Gold was quoted at USD1,812.90 an ounce midday Friday, sharply higher on USD1,789.81 on Thursday.

Polymetal International and Fresnillo were up 1.6% and 1.1%, following gold prices higher.

By Paul McGowan; paulmcgowan@alliancenews.com

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