Austria confines the population: nerves return to financial markets

Not only the unvaccinated, who are more than two million inhabitants. Austria decides to extend the confinement to the entire population starting Monday for ten days – which could be 20 – to stop the increase in coronavirus cases. In the last 14 days, the incidence rate has skyrocketed with more than 1,500 new infections per 100,000 inhabitants in a country of eight million people. The nerves that the pandemic will repeat the worst episodes experienced in 2020 return to the financial markets. Equities, fixed, raw materials … no one escapes the fears.

The European stock markets leave behind the gains of the day to trade at a loss. The EuroStoxx 50 retakes its falls below 4,400 points, while the German Dax, where infections are also increasing in a worrying way, moves with many doubts. It goes without saying about the Austrian stock market, where its main ATX index falls more than 3% vertically, marking the biggest drop of the year.

The Ibex 35 also gives in to pressure, being one of the worst in Europe. After registering its maximum of the day at 8,954 points, the index has fallen to a minimum of the day around 8,700 integers. A figure that has distanced him from 8,800 points. What will happen if the index loses this support today (or another day)? As explained by the advisor of Ecotrader, Joan Cabrero, will open the door to retreat towards the September lows of 8,550 integers, that is, an additional 2.8% in the short term. Cabrero also points to the July lows, 8,250 (another 3.5% down) as a level to take into account if the worst omens are confirmed.

Almost logically, tourism values ​​take the worst of it with steep drops of up to 5% for IAG or 3% for Aena and Amadeus. The airline’s shares are falling to the area of ​​1.75 euros, the lowest since September this year, when the Delta variant called into question the recovery of the airline sector. There is no doubt that the confinement in Austria and greater restrictions in Germany could damage the routes between these countries and the Canary Islands, which have their peak season precisely in the coldest months of the year on the Old Continent.

Analysts at Link Securities were already smelling something first thing in the morning. “Factors such as high inflation and the increasingly widespread restrictive measures that European governments threaten to adopt to combat the rebound in covid-19 cases, we believe will limit the rebound of these bags,” they indicated. The step the Austrian government has taken may be the first of many. Covid cases could also force Germany to take similar measures, generating a notable impact on air transport and tourism.

For more inri, this Friday the monthly expiration of futures and options takes place, which always increases volatility in the market. Thus, the Spanish stock market is heading towards the end of one of its worst weeks of the year, further aggravating its appearance in a month that is not being easy at all for the homeland equities.

However, the losses recorded by the Ibex 35 in November do not reach those suffered last June (-3.58%) or in January (-3.92%), its two worst months, for the moment, in 2021. The most bullish monthly balance was registered in February (+ 6.03%).

What are investors doing? They are taking refuge in the fixed rent. The price of bonds skyrockets and interest falls. The yield on the Austrian ten-year bond has gone from -0.03% to -0.08%, at September lows. The purchases have spread across all European bonds. The yield of the German bund falls to less than -0.3%. Investor capital seeks refuge primarily in high-quality sovereign debt. The fall in profitability is being less in peripheral debt. The yield of the Spanish bond is close to 0.4%, without reaching September lows.

In commodity markets, uncertainty also leads to Petroleum to move with decreases of around 3%. Both the barrel of Brent, a benchmark in Europe, and that of West Texas, a benchmark in the US, fell.

The currencies do not hold the stake and the euro it yields 0.7% in its crossing with the dollar to 1.1286 greenbacks.

Shift in interest rate expectations

The words of the President of the ECB, Christine Lagarde, this morning urging the central bank itself not to tighten monetary policy too soon, even in the face of “painful and unwanted” inflation, and the news of the lockdown in Austria due to cases of covid, a dynamic that can be extended to other countries, has permeated the market and caused a turnaround in bets on rate hikes next year. The operators They are beginning to contemplate a scenario with no rate hikes just one week after betting on a 20 basis point hike by December 2022.

“Admittedly, it takes some fantasy to see a rate drop next year, but at some point the market has to completely eliminate the view of a rate hike next year,” he explains to Bloomberg Christoph Rieger, strategist at Commerzbank. The memory of the last confinements due to the pandemic remains fresh in the minds of investors, who are betting that the strong increase in covid cases will reduce the incipient growth prospects.