Stocks, oil collapse due to fears of various viruses, safe havens win

  • European shares down 2.7%; S&P 500 futures drop 1.8%
  • US crude drops 5.7%
  • The price of the bond fell by 6.2 basis points

LONDON (Reuters) – Global stocks tumbled on Friday and oil prices fell below $80 a barrel after news of a potentially vaccine-resistant strain of coronavirus sent investors scrambling toward the safety of bonds, the yen and the Swiss franc.

Little is known about the variant, which was discovered in South Africa, Botswana and Hong Kong, but scientists say it has an unusual mix of mutations, may be able to evade immune responses and could be more transmissible. Read more

British authorities believe this is the most important option to date and have been quick to impose travel restrictions on South Africa, as did Japan, the Czech Republic and Italy on Friday. Read more [nL8N2SH1HS

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The European Union also said it aimed to halt air travel from the region.

“Markets have been quite complacent about the pandemic for a while, partly because economies have been able to withstand the impact of selective lockdown measures. But we can see from the new emergency brakes on air travel that there will be ramifications for the price of oil,” said Chris Scicluna, head of economic research at Daiwa.

The World Health Organization is convening an experts’ meeting later on Friday to evaluate whether the new variant is a “variant of concern.” read more

Global shares (.MIWD00000PUS) fell 0.8% and were on course for their worst week since early October.

European stocks (.STOXX) plunged 2.7%, on track for their worst day since September 2020, with travel and leisure stocks particularly badly hit.

Germany’s DAX (.GDAXI) sank 3% and Britain’s FTSE 100 (.FTSE) fell 2.7% to its lowest in more than a month.

MSCI’s index of Asian shares outside Japan (.MIAPJ0000PUS) fell 2.2%, its sharpest drop since August. Casino and beverage shares were hammered in Hong Kong, while travel stocks dropped in Sydney and Tokyo.

Japan’s Nikkei (.N225) skidded 2.5% and S&P 500 futures were last down 1.8%.

Giles Coghlan, chief currency analyst at HYCM, a brokerage, said the closure of the U.S. market for the Thanksgiving holiday on Thursday had exacerbated moves.

“We need to see how transmissible this variant is, is it able to evade the vaccines – this is crucial,” Coghlan said.

Passersby wearing protective masks are reflected on an electronic board displaying stock prices outside a brokerage amid the coronavirus disease (COVID-19) outbreak, in Tokyo, Japan, September 29, 2021. REUTERS/Issei Kato

“I expect this story to drag on for a few days until scientists have a better understanding of it.”

Oil prices slid, with U.S. crude futures down 5.7% to $73.96 a barrel and Brent crude down 4.66% to $78.38 amid fresh demand fears.

As investors dashed for safe-haven assets, the yen jumped more than 1% to around 113 per dollar, having languished earlier this week at five-year lows.

The euro rose 0.4% to $1.1251, as safety rather than policy differentials drove trade.

The single currency, however, fell to near 6-1/2 year lows against the Swiss franc at 1.044 francs per euro.

“You shoot first and ask questions later when this sort of news erupts,” said Ray Attrill, head of FX strategy at National Australia Bank in Sydney,.

South Africa’s rand fell 2% to a one-year low and its 2030 bond yield soared 25.5 basis points (bps). Bond yields move inversely to price.

Other bond markets strengthened, benefiting from their safe haven status. Ten-year Treasury yields fell 11 bps to 1.5277% and 30-year yields were down 9 bps to 1.8777%.

Germany’s 10-year bond yield was down 6.2 bps at -0.31%

Gold rose 0.7% to $1,800 an ounce.

The market swings come against a backdrop of already growing concern about COVID-19 outbreaks driving restrictions on movement and activity in Europe and beyond.

European countries have expanded COVID-19 booster vaccinations and tightened curbs. Slovakia announced a two-week lockdown, the Czech government will shut bars early and Germany crossed the threshold of 100,000 COVID-19-related deaths. read more

“I don’t think there’s any going back to the pre-COVID-19 world,” said Mark Arnold, chief investment officer at Hyperion Asset Management in Brisbane.

“We’re just going to get mutations through time and that’s going to change the way people operate in the economy. That’s just reality.”

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Editing by Lincoln Feast and Mark Potter

Our Standards: The Thomson Reuters Trust Principles.

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