- Global equities are cratering after a new, highly mutated COVID variant was discovered in South Africa.
- Analysts said volatility would be exacerbated by poor liquidity, with trading in the U.S. limited by Thanksgiving.
- Another said investors are simply not taking any chances as they wait for more details on the new variant.
Global equities are being hammered on Friday after a new, highly mutated COVID variant was identified in South Africa, causing countries to restrict travel and raise fears of yet another wave of cases.
Researchers are in the process of finding out if the new variant, called B.1.1.529, is more contagious or deadly than previous strains. South Africa has confirmed about 100 cases, but it has already been found as far away as Hong Kong.
Global investors do not like what they see. S&P 500 futures last fell 1.73%, suggesting stocks will plunge at the start of a Thanksgiving-shortened trading day. Dow Jones futures fell 2.16 percent.
In Europe, the entire continent Stoxx 600 fell 2.57% in morning trading, after Tokyo’s Nikkei 225 fell 2.53% overnight. Oil prices have risen by more than 5% as investors weigh in on the chances of more lockdowns and travel bans.
Commerzbank analysts called it a “black Friday”. Here’s what others are saying while the new variant shakes the markets.
Poor liquidity drives volatility
“US stock futures shot lower from the moment they opened overnight on the new Covid variant news,” he said. Steen Jakobsen, chief investment officer at Saxo Bank.
“Given the low liquidity in the US today, as many are off their desks for a long holiday weekend and the market is only for half a session, any significant flow from traders who want to reduce risk can mean significant volatility.”
The markets take no chances
“Investors are voting with their feet this morning,” he said Jeffrey Halley, senior market analyst at trading platform Oanda.
“The one bull in the china shop that could really derail the global recovery has always been a new strain of Covid-19 that swept across the world, causing the reintroduction of social retreats.
“Markets are taking no chances, stocks are falling, refugee currencies such as the US dollar, Japanese yen and Swiss franc are rising … US 10-year bond yields have fallen sharply and oil has fallen.”
Growth and central banks should provide a cushion
“With stock markets at all-time highs, thin liquidity at the end of the year and COVID cases again, a pullback seems logical,” he said. Emmanuel Cau, Head of European Equity Strategy at Barclays.
“But we believe resilient growth and patient central banks should continue to provide a medium-term buffer while investors have dry powder to buy diver.
“The key is to find out if current vaccines remain effective against the variants or not. COVID uncertainty could force central banks to err on the side of caution.”
The travel industry is hitting fierce storm
“Fear has gripped the financial markets with the travel industry flying into yet another violent storm following the discovery of a new COVID strain that could be far more contagious and could make vaccines less effective,” he said. Susannah Streeter, senior investment and market analyst at broker Hargreaves Lansdown.
“There are now fears that the highly mutated COVID strain discovered in southern African states will lead to new shutdowns.
“The decision of the British Government to impose strict quarantine rules on six South African countries within hours has raged severely in the travel and tourism industry.”
Read more: Jay Powell’s appointment to the Fed chair will continue to inflate a stock market bubble, which is a systemic risk to the economy, warns Stifel’s top strategist. He shows why stocks have not been so exaggerated since 1929 or 1999 – and shares when he thinks the bubble will burst.