FTSE 100 tumbles and oil hits two-month low as Covid variant fears hit markets – business live

Wall Street’s ‘fear index’, the VIX, has jumped by 40% this morning.

The Vix index, which measures the likely volatility in US stocks over the next month, rose by 8 points on Friday to 26.6, the biggest increase since early 2021.

That shows investors are worried, as they sell riskier assets such as shares and race into perceived ‘haven’ assets such as government bonds.

Wall Street was closed yesterday for Thanksgiving, but opens at 2.30pm UK time (9.30am New York) for a half-day session.

The Dow Jones industrial average is currently on track to tumble 800 points, or over 2%.

A new virus variant has come like a bolt out of the blue to rattle financial markets, writes Marios Hadjikyriacos, senior investment analyst at XM.

The underlying concern is that vaccines may be less effective against this ‘Nu’ variant and it may spread easier thanks to its high number of mutations. The jury is still out though, as there isn’t much data available yet.

Of course, markets aren’t going to wait around until all the details are known. Traders are already running for cover, slashing their exposure to stocks and loading the truck with bonds.

European equity indices are down by roughly 3% while the S&P 500 is set to open 2% lower according to e-mini futures. The tech-heavy Nasdaq is holding up better. It is mostly ‘real economy’ stocks that are getting hammered, with the drop in yields also cushioning the blow in the tech complex.

Concerns over the B.1.1.529 variant could deter the Bank of England from raising interest rates next month.

The pound hit a new 11-month low this morning, falling below $1.33 against the US dollar for the first time since last December.

Market prices this morning imply a roughly 60% chance that the BoE leaves interest rates on hold at 0.1% at its next monetary policy committee meeting, on 16th December.

Cryptocurrencies are also being hammered this morning, as investors dump riskier assets for the perceived safety of bonds, the yen and the dollar.

Bitcoin, the largest digital currency, has tumbled by 7% to $54,840, its lowest since October 13th.

That’s around 20% below its record high set earlier this month:

Markets are likely to remain nervous until we know how the seriousness of the B.1.1.529 variant, says Rupert Thompson, chief investment officer at Kingswood.

“Stock markets have taken a 2.5-3% hit this morning from the news of a new, more infectious and potentially more vaccine-resistant coronavirus variant in a number of countries including South Africa.

This follows hard on the heels of increasing worries about the sharp rise in infections and new Covid-restrictions being seen in Europe and means Covid is once again top of mind for markets.

The extent of the threat posed by this new variant is far from clear and equities are likely to remain skittish until there is further clarity on this which may not be for a few weeks.

Market nervousness is likely to be heightened as this latest development occurs just as the US Fed had begun talking of speeding up the pace of its tapering, paving the way potentially for a rate hike as early as the spring.”

After two hours of jittery trading, the UK’s stock market is on track for its biggest fall this year.

The FTSE 100 index is down 204 points, or 2.8%, at 7105 points – slightly above its earlier lows.

That would be the FTSE 100’s worst one-day percentage drop since September 2020, with travel, hospitality, oil companies and banks all still sharply lower.

Russ Mould, investment director at AJ Bell, sums up the situation:

“The drop in the oil price is the market’s way of saying it is worried about a reduction in economic activity, something which also explains the slump in metal prices.

“Markets are clearly speculating that a rapid spread of a more brutal Covid strain could once again derail the global economy. Banking stocks were also weak as they are closely tied to economic activity.

“Headlines calling it the ‘worst ever variant’ have caused investors to panic and dump shares in travel-related stocks for fear that we’re going to see tough travel restrictions once again

“This is the worst possible news for airline operators as they were just starting to see a pick-up in trading, helped by people becoming more comfortable about travelling on a plane and routes like US/UK reopening.

The selloff in energy markets is continuing, pulling US crude oil down almost 7% today.

US crude has hit a two-month low below $73 per barrel, down around $5 per barrel today.

Oil had rallied for much of this year, as the reopening of economies spurred demand for energy and fuel, but traders fear that the new B.1.1.529 variant could possibly derail that recovery.

Ricardo Evangelista, senior analyst at ActivTrades, explains:

Oil prices are falling on fears that a new variant of the coronavirus identified in Southern Africa could force the reintroduction of travel restrictions, reducing global fuel demand.

The virus-related worries appear to be multiplying the effect of the recent release of large quantities of oil from the strategic reserves of the US and other consumer countries. This increase in supply and fears over future demand caused a drop of almost 4.5% in the price of Brent during the early Friday trading.

Ocado, the online grocery business, is a rare riser in London this morning, up around 1.5%, amid high concerns about the B.1.1.529 variant.

“Things have escalated on the Covid front quite rapidly over the last 12 hours,” points out Deutsche Bank strategist Jim Reid.

Yesterday the new Covid variant B.1.1.529 was slowly starting to gather increasing attention but overnight it has begun to dominate markets and has caused a notable flight to quality [such as US government bonds].

Other ‘stay at home’ stocks are also rising, points out Victoria Scholar, head of investment at interactive investor.

The South African rand is continuing to slide, down 2% at a one-year low, she adds.

European stock markets have all fallen heavily too this morning, with the pan-European Stoxx 600 down 2.7%.

The European travel and leisure stock index hit a 10-month low, with airline stocks such as Lufthansa (-9%) sliding.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, says fear has gripped the financial markets this morning, due to concerns that the new Covid strain could be far more contagious and might render vaccines less effective.

The decision by the UK government to impose stringent quarantine rules on six southern African countries within hours has severely rattled the travel and tourism industry….

The immediate way the tough restrictions were imposed was a reminder of just how tied companies’ fortunes are to snap government decisions and the latest twists in the trajectory of the virus.