The new variant of covid unleashes panic in the markets: stocks and oil sink

The new variant of covid detected in South Africa could be more contagious and more complex to stop by vaccines, according to the first investigations. The markets are already beginning to discount a gloomy scenario with strong declines in European stocks and in other risk assets such as oil. The Ibex 35 is left more than 3.5%, with banking, tourism and Repsol as red lanterns. On the contrary, the yen and gold, safe havens, are strong amid the turmoil.

The Ibex 35 is trading a remarkable bump. The Spanish stock market left more than 3.5% at the opening. The airline IAG and Aena are losing 9%, while the banking sector is plummeting: Bankinter (it has fallen by as much as 11%), BBVA and Santander are losing up to 6%. Another of the most affected firms, in this case due to the drop in oil, is Repsol that falls more than 7% up to 9.8 euros per share. Other firms linked to raw materials also suffer a considerable hit, such as ArcelorMittal (-6%).

The fall of the Spanish selective is the largest since June 2020. The Ibex 35 has lost 400 points at a stroke, which leaves the selective at minimum since July this year. The uncertainty is maximum and any regrowth that may limit mobility and weigh down the economy can return stocks to the starting box in a matter of days. On the other hand, Wall Street futures also predict declines and fall more than 2%. The Christmas rally is in danger.

Falls in Asia

Asian stocks have suffered its steepest drop in two months after the announcement of the detection of a new variant of the coronavirus, possibly resistant to vaccines.

Equities in Asia were the first to suffer the consequences of this new variant. Casino and beverage stocks have been sold off in Hong Kong, while travel firms fell in Sydney have seen a black day. Detected cases are being reported in South Africa and neighboring countries, but its expansion is being rapid and there are already two cases identified in Hong Kong from the South African region and one in Israel (pending two suspected cases), as revealed Bloomberg.

Japan’s Nikkei has corrected 2.5% and crude oil futures are down about 5% also amid new demand fears and possible inter-country travel bans. The demand for fuels is the most sensitive to mobility restrictions, which are beginning to be announced in several countries.

Scientists have claimed that the variant, detected in South Africa, could bypass immune responses. British authorities believe it is the strongest variant to date and fear that it may withstand vaccines, so they have been quick to impose travel restrictions with South Africa.

“You shoot first and ask questions later when this kind of news comes out,” explains Ray Attrill, head of foreign exchange strategy at National Australia Bank in Sydney, speaking to Reuters.

“Right now it is too early to assess the possible economic consequences, but any new wave could cause serious economic damage,” says Holger Schmieding, Berenberg’s chief economist. “As a potentially mitigating factor, the world is now on high alert and has increased its capacity to develop, adjust and produce vaccines,” he stresses.

Still, the uncertainty is such that the South African rand falls sharply 1% to a one-year low in early trading. The risk-sensitive Australian dollar and New Zealand currency are falling to three-month lows.

Cryptocurrencies are not spared from the turmoil either. The bitcoin It increases the losses infected by the concern of the market, and has come to yield 7.5% in the London Stock Exchange, to 54,430.35 dollars. The virtual currency par excellence is already 20% from the historical highs registered at the beginning of the month. Ether, meanwhile, has fallen by as much as 9%.

Safe haven assets work

Every cross has its face, in this case it is for safe haven assets such as the yen, gold or high-quality sovereign debt. The yen rose more than 1% against the dollar, while gold advanced more than 1% to 1,800 dollars an ounce. Investors seek refuge in assets that perform best amid the turmoil.

The US currency also leaves half a percentage point in its cross with the euro, which has reached 1,1269 green ‘bills’ this morning. It is precisely the US currency that has been on a roll, crushing a euro that lately has not raised its head at the crossroads. “The euro, which otherwise appears to have benefited marginally from its underperforming condition as the new variant shakes the markets, could hold above 1.1200 over the weekend,” ING analysts say in a note.

In the bond market, higher risk aversion leads to increased investor exposure to sovereign debt markets in advanced economies, contributing to lower profitability. In the case of Spain, the yield on the Spanish bond is reduced by 14%, to 0.445%. In the case of the German bond, the decline reaches 25% and stands at -0.308%.

Flight bans

The President of the European Commission, Ursula von der Leyen has proposed today emergency actions to stop all flights that come from South Africa, as communicated by Twitter.

Fears about the spread of the new variant has led several countries to restrict flights from South Africa. United Kingdom, criticized for the slow management of previous strains, it has been the first to announce limits on entry into the country and this noon the temporary ban on aircraft from both South Africa and five other neighboring countries will come into force: Namibia, Lesotho, Eswatini, Zimbabwe and Botswana. The six African countries will become part of the UK red list from Sunday and travelers will be required to quarantine in hotels upon arrival.

Other countries have followed the path of the United Kingdom and have also restricted entry from South Africa. This is the case of Israel or Singapore (which adds Mozambique to the list and limits entries to those who have been outside of those countries for more than 14 days).

Italy Germany, Czech Republic, Netherlands … the list of countries with restrictions on flights is increasing. The Italian Government will be one of the most restrictive and will proceed in terms similar to those of Singapore.

Little is known about the new variant. However, scientists have revealed to the press that it has a “very unusual constellation” of mutations, concerning because they could help you bypass the body’s immune response and make it more transmissible.

How is the new variant?

Scientists say that it carries a large number of mutations in its protein, which plays a key role in the entry of the virus into the cells of the body. It could also complicate the action of vaccines. Researchers are still trying to determine if it is more transmissible or more lethal than the previous ones.

Where does it come from?

So far there is only speculation. A scientist at the UCL Genetics Institute in London assures that it has probably evolved during a chronic infection of an immunosuppressed person, possibly in an untreated HIV / AIDS patient. South Africa has 8.2 million people infected with HIV, the highest number in the world. The beta variant, a mutation identified last year in South Africa, can also come from an HIV-infected person.

How widespread is it?

As of Thursday, nearly 100 cases had been detected in South Africa, where it has become the dominant strain among new infections. The first results of the PCR test showed that 90% of the 1,100 new cases reported on Wednesday in the South African province that includes Johannesburg were caused by the new variant, according to Tulio de Oliveira, a professor of bioinformatics who heads sequencing institutions of genes at two universities. In neighboring Botswana, authorities recorded four cases Monday in people who were fully vaccinated. In Hong Kong, a traveler from South Africa has been found to have the variant and another case was identified in a quarantined person in a hotel room across the hall.

How serious can it be?

It’s too soon to say that. The World Health Organization (WHO) believes that there are fewer than 100 complete genomic sequences of the new variant available, which could increase the time it takes to study it, as well as evaluate the good work of current vaccines against it. Viruses mutate all the time, and the changes sometimes make the virus weaker or sometimes more adept at evading antibodies and infecting humans.

The WHO has called a meeting for this Friday and will officially decide if it is a variant of interest or concern. If you do, you will receive a Greek letter name under the WHO naming scheme, probably the letter ‘nu’. Governments are also likely to take action on travel and border controls in response to news of the variant.