New variant of Covid shakes up global markets with 5% drop in oil

Crude oil storage tanks are seen in an aerial photograph at the Cushing Oil Hub in Cushing, Oklahoma, the United States, April 21, 2020.

Drone base | Reuters

Global markets entered free fall on Friday following news of a highly mutated Covid-19 variant first detected in southern Africa.

The World Health Organization will meet on Friday to discuss the emergence of the B.1.1.529 variant, which South African scientists say contains more than 30 mutations in the spike protein, the component of the virus that binds to cells. This is significantly more than the now dominant Delta variant, which itself is highly contagious.

Many of these mutations are linked to increased resistance to antibodies and could affect how the variant behaves with regards to vaccines, treatments and transmissibility, health officials have said, although the WHO has said that further investigation is needed to better understand the implications.

The pan-European Stoxx 600 fell 2.8% by mid-afternoon in Europe as travel stocks suffered heavy losses as well as the oil and gas sector as oil prices fell.

International benchmark Brent crude fell 5% to $ 78.15 a barrel during the afternoon trading in Europe, while US crude fell more than 5.5% to $ 74.08.

In the U.S., U.S. equity futures showed an opening loss of more than 700 points on the Dow Jones Industrial Average, while Asia-Pacific markets fell sharply overnight, l Hong Kong’s Hang Seng Index and Japan’s Nikkei 225 each losing more than 2.5%.

The benchmark 10-year Treasury bill yield fell more than 10 basis points to 1.5345% at 4 a.m. ET. The yield on 30-year Treasury bills fell to 1.8714%. Yields move in the opposite direction of prices and 1 basis point equals 0.01%. Spot gold rose about $ 18 to $ 1,807 per troy ounce.

The variant was detected in a quarantine hotel in Hong Kong in a traveler from South Africa, an individual across the corridor was also reportedly affected and the remaining travelers quarantined separately. Cases have also been reported so far in Botswana, Israel and Belgium.

The UK government has banned flights from South Africa and Botswana, where cases of the new variant have also been reported, along with Eswatini, Lesotho, Namibia and Zimbabwe, from Friday noon to Sunday 4 time. From there, a mandatory 10-day quarantine period will be imposed on travelers from these countries.

Some analysts have suggested that the brutality of the market movements could be exacerbated by the decrease in trading volumes due to the Thanksgiving holiday in the United States. U.S. markets were closed Thursday and will only operate until noon Friday.

Cryptocurrencies did not avoid the blow either. Bitcoin has fallen 7% in the past 24 hours to $ 54,561, according to data from Coin Metrics, its lowest level since October 8. The cryptocurrency is down 20% from an all-time high of nearly $ 69,000 it hit earlier this month.

Bitcoin has often been described by its supporters as “digital gold,” a reference to the yellow metal’s status as a so-called safe haven asset.

Crypto investors say virtual currency offers a store of value as well as a hedge against inflation. Other cryptocurrencies also fell sharply on Friday. Ether, the second biggest crypto, plunged more than 10% to $ 4,007, while XRP fell 10% to around 95 cents.

More cautious central banks

Geoffrey Yu, senior market strategist at BNY Mellon, told CNBC’s “Squawk Box Europe” on Friday that some corners of the market might believe news of this new variant would give the Federal Reserve a reason to suspend its policy normalization. monetary, although he was not necessarily in agreement with this point of view.

Yu said the recent resurgence of Covid cases in Europe, even before news of this latest variant emerged, showed that “we’re still going to deal with this for a while, and there will be rounds of dislikes. at the risk that will hit the markets, due to concerns about the pandemic. “

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Emmanuel Cau, head of European equity strategy at Barclays, said that with many major stock markets at or near historic highs, a pullback seems “logical”.

“We have advised higher sector allocation and lower hedges at these levels, but believe resilient growth and patient central banks should continue to provide a cushion over the medium term, while investors have some steam. dries to buy drops, “Cau said in an email Friday.

“What is critical is whether the current vaccines remain effective against the variants or not. The uncertainty of Covid could force central banks to err on the side of caution.”

– CNBC’s Vicky McKeever and Ryan Browne contributed to this report.

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