(Bloomberg) — Investors dumped risk assets and flocked to havens Friday as a new variant of the coronavirus made its presence known in global markets.
Treasuries led a rally in global bonds, while the yen led gains among G-10 currencies amid fears that the variant first discovered in South Africa may spread and hurt the global economic recovery. Risk assets took a hit — U.S. stock futures slid and European equities were set for their worst drop in a year. The Cboe Volatility Index, or the VIX, surged the most in nine months, while emerging-market currencies erased their 2021 gains.
Authorities around the world have been quick to act against the B.1.1529 variant, though researchers have yet to determine whether it’s more transmissible or lethal than previous ones. The lack of information pushed traders to recalibrate expectations for rate hikes from central banks, weighing the variant’s potential hit to growth against inflationary pressures.
“If the new variant hits the energy demand, then we could see easing in energy prices which could tame the inflation pressures and help central banks keeping a more-dovish-than otherwise line next year,” said Ipek Ozkardeskaya, a senior analyst at Swissquote, said in emailed comments. “Risks seem tilted to the downside before we see inflation easing.”
Travel stocks tumbled as the European Union, U.K. and Israel moved to halt flights from South Africa and the surrounding region. Hong Kong confirmed two cases of the new strain in travelers arriving in the city, the government said Thursday evening.
Treasuries jumped across the curve. The 10-year yield — the global bond benchmark — dropped 12 basis points to 1.51% as cash trading resumed following the U.S. Thanksgiving holiday. German 10-year rates also slumped, while money markets trimmed bets on rate hikes from the Federal Reserve, Bank of England and European Central Bank.
The yen climbed 1.2%, while the South African rand, Mexican peso and Russian ruble led declines among emerging-market currencies.
Oil fell sharply as the new strain raised concerns about the outlook for energy demand before the Organization of the Petroleum Exporting Countries and allies meet next week on its production policy.
OPEC+ meets Dec. 2 to decide output for January following the unprecedented move by the U.S. and other nations to tap strategic stockpiles to tame rising energy prices.
Travel Shock
Travel emerged as one of the biggest losers among sectors on worries about curbs. Cruise operators and airlines fell in U.S. premarket trading, while a gauge of European travel and leisure shares erased gains for the year.
On the flip side, lockdown beneficiaries such as Zoom Video Communications Inc. and Peloton Interactive Inc. advanced, as did vaccine makers such as Moderna Inc. and Pfizer Inc. Some Asian and European stay-at-home winners also gained.
Frayed Nerves
Global investor nerves were already frayed this week amid concern over the withdrawal of stimulus from the Federal Reserve and the seemingly relentless rise in inflation. High-priced tech stocks had come under pressure, cryptocurrencies saw increased price swings and the cost of downside protection on the S&P 500 pushed higher.
Bitcoin tumbled on Friday, taking its slide since a record high earlier this month to more than 20%.
Love Affair With Riskiest Assets Turns Turbulent on Fed Fears
The risk-off move even seeped into trader bets on Fed rate hikes next year, with December’s 2022 Eurodollar futures knee-jerking higher — a sign of slightly reduced expectations. Still, the advance is only a reversal of this week’s drop which was dominated by relatively hawkish comments from Fed officials.
(Updates with market moves throughout)
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