Stocks markets, oil plummet as new virus variant sparks panic

Stock markets and oil prices plunged on Friday over fears of a new coronavirus variant that scientists warn could be more infectious than Delta and more resistant to vaccines, potentially dealing a heavy blow to the global economic recovery.

Haven investments the yen and Swiss franc rallied but the dollar floundered.

Share prices of airlines and tourism groups dived as countries put in new travel restrictions, while there were big losses also for energy groups.

“Stock markets fell sharply... as fears a new Covid variant will lead to fresh lockdowns, mobility restrictions and lower economic growth,” noted Neil Wilson, chief market analyst at Markets.com.

Europe’s main equity markets were down at least three per cent approaching the half-way mark following sharp falls in Asia.

Crude oil prices slumped between six and seven per cent.

“It’s a scary headline” about the virus, so it may have caused a knee-jerk reaction, said Kyle Rodda at IG Markets.

Justin Tang at United First Partners said that while the latest news was worrying, “the world has gone through this before” with the Delta variant, adding that governments were more adept at knowing how to deal with the situation.

“Mutations are expected and not something unknown,” he said.

The World Health organisation cautioned against imposing new travel restrictions over the new Covid-19 variant B.1.1.529.

It added that it would take “a few weeks” for researchers to understand the impact of the variant detected in South Africa.

Germany’s BioNTech said it was studying how well the coronavirus vaccine it developed with US drugs giant Pfizer protects against the new variant.

“We expect more data from the laboratory tests in two weeks at the latest. These data will provide more information about whether B.1.1.529 could be an escape variant that may require an adjustment of our vaccine if the variant spreads globally,” a BioNTech spokesperson said.

- Fed outlook - Traders were keeping a wary eye also on the Federal Reserve as the US central bank considers its next moves to fight soaring global inflation, which is an additional threat to economic recovery.

Some officials at the bank have flagged a quicker pace of tapering the Fed’s vast bond-buying stimulus programme, with a hike in US interest rates coming possibly in the middle of next year.

“The increased openness to accelerating the taper pace likely reflects both somewhat higher-than-expected inflation over the last two months and greater comfort among Fed officials that a faster pace would not shock financial markets,” Goldman Sachs said in a note to clients.

US stock index futures slumped on Friday, with travel, bank and commodity-linked stocks bearing the brunt of a selloff triggered by the discovery of a new and possibly vaccine-resistant coronavirus variant.

Southwest Airlines, American Airlines, United Airlines dropped between 5.8% and 8.9% in premarket trading, while cruiseliners Carnival Corp, Royal Caribbean Cruises and Norwegian Cruise Line plunged 10% each.

Global stock markets sold off sharply after reports that the new variant detected in South Africa prompted the European Union, Britain and India among others to announce stricter border controls.

Little is known of the variant, but scientists say it has an unusual combination of mutations, may be able to evade immune responses and could be more transmissible.

A top US infectious disease official said no decision had been made on a US travel ban, but said it was a possibility.

Wall Street lenders Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co, Goldman Sachs, Wells Fargo & Co and Morgan Stanley slipped between 3% and 4%, as investors pared back bets of faster US interest rate hikes.

Futures tracking the domestically focused Russell 2000 small-cap index tumbled 3.4%, looking at its worst day since June 2020.

“The new variant news has brought with it a ‘sell first and ask questions later’ mentality,” said Ryan Detrick, chief market strategist at LPL Financial. “The economic recovery has been quite impressive and the one thing that could knock it over completely would be a more dangerous variant.” At 8:00am, Dow e-minis were down 782 points, or 2.19%, S&P 500 e-minis were down 79.25 points, or 1.69%, and Nasdaq 100 e-minis were down 171.5 points, or 1.05%.

The CBOE volatility index, popularly known as Wall Street’s fear gauge, jumped to its highest level since Sept 20.

Elevated US inflation, coupled with strong economic data and the renomination of Jerome Powell as the Fed chair by President Joe Biden, had prompted market participants to raise their bets on early interest rate hikes next year, knocking US stocks off their record levels this week.