'Fear has gripped the financial markets': What investors are saying about the new COVID-19 variant - The Globe and Mail

U.S. stock index futures pointed to a slide at the post-Thanksgiving Wall Street open and oil hit two-month lows as fears of a possibly vaccine-resistant coronavirus variant sent investors scurrying to safe-haven assets.

Asian and European countries rushed to tighten restrictions on Friday after a new and possibly vaccine-resistant coronavirus variant was detected in South Africa, with Singapore and India announcing stricter border controls and more rigorous testing.

PETER RUTTER, HEAD OF EQUITIES AT ROYAL LONDON ASSET MANAGEMENT

“This news is putting the handbrake on markets. This could be the moment that people look back on as derailing the economic recovery and rate rises. What we have is a big insertion of uncertainty rather than something material but markets don’t like that.

“The very fact we don’t know, is what’s concerning the market. There is a huge range of outcomes that can happen. We could have serious lockdowns or we get no lockdowns and a booming economy.”

STEEN JAKOBSEN, CHIEF INVESTMENT OFFICER, SAXO BANK:

“A new Covid wave is leading investors to fly to safety, provoking yields to drop roughly 10 bps across the whole US yield curve. However, we expect the bond rally to be short-lived for several reasons. First, the market has learnt through earlier new strains that Covid is temporary. Secondly, a renewal of lockdown measures would make supply chain bottlenecks worse, introducing even more inflationary pressures to the economy. Therefore, it’s necessary for central banks to stop stimulating demand, keeping intact the recent Fed’s hawkish tilt.

SCOTIABANK STRATEGISTS:

“Given that COVID has hardly been contained globally at this point and that we do not yet know whether this new variant, with all its mutations, is a greater threat, the market’s reaction seems a little excessive.

“But investors are prone to shoot first and ask question later and not stand in the way of these sorts of position unwinds. The process may have a little further to run. Recall that seasonal trends for the U.S. dollar tend to turn more negative in December; market volatility might be the sort of cover markets need to lighten up on (rates and dollar) positioning now and reassess prospects in January.”

SUSANNAH STREETER, SENIOR INVESTMENT AND MARKETS ANALYST, HARGREAVES LANSDOWN:

“Fear has gripped the financial markets with the travel industry flying into another violent storm, after the discovery of a new COVID strain which could be far more contagious and may render vaccines less effective.”

PETER CHATWELL, HEAD OF MULTI-ASSET STRATEGY AT MIZUHO INTERNATIONAL:

“The European lockdowns on their own would have meant soft Q4 GDP growth, but a Q1 rebound. US, UK, Asia all looked unaffected by Europe’s problem. If the new variant does deliver its potential (usurping Delta, and reducing vaccine efficacy) we need to think about a globally soft/flat Q4 and Q1 GDP growth. Vaccine efficacy will determine the severity of lockdowns, and therefore whether this becomes another recession.”

RBC CAPITAL MARKETS, EUROPE:

“It is the threat of vaccine escape that causes the market reaction in both equities (down) and bonds (up). As long as markets are faced with a familiar virus situation that can be overcome with a sufficiently crafted and executed vaccination strategy, the reactions will be muted, as we have seen with the short-lived bond market rally last week when new lockdowns were announced in Europe. This new variant, however, creates a potential threat to the known responses and thus creates a more lasting market response.”

HOLGER SCHMIEDING, CHIEF ECONOMIST AT BERENBERG:

At this stage, it is too early to assess the potential economic consequences. Any new wave could cause serious economic damage. As one potentially mitigating factor, the world is now on high alert and has ramped up its capacity to develop, adjust and produce vaccines.”

TAKASHI HIROKI, CHIEF STRATEGIST, MONEX, TOKYO

“This variant is a new risk for markets. We can’t tell how far it can evade vaccines.”

RAY ATTRILL, HEAD OF FX STRATEGY, NAB, SYDNEY

“People are reacting with the uncertainty about what this means. You shoot first and ask questions later when this sort of news erupts.”

MOH SIONG SIM, CURRENCY ANALYST, BANK OF SINGAPORE

“We still don’t know how infectious the virus is ... it’s a general uncertainty. Markets are anticipating the risk here of another global wave of infections if vaccines are ineffective.

“Reopening hopes could be dashed.”

MARK ARNOLD, CIO, HYPERION ASSET MANAGEMENT, BRISBANE

“I don’t think there’s any going back to the pre-COVID world. We’re just going to get mutations through time and that’s going to change the way people operate in the economy. That’s just reality.”

SHINICHIRO KADOTA, SENIOR FX STRATEGIST, BARCLAYS, TOKYO

“We see Germany considering a lockdown, so this new variant and flare-up in the COVID situation poses some risk to market sentiment in general.

“If the COVID situation worsens, then dollar-yen could go down further, but otherwise the monetary policy divergence is definitely going to be weighing on the yen in the medium term.”

MARTIN WHETTON, HEAD OF FIXED INCOME, CBA, SYDNEY

“Keep an eye on the new COVID-19 variant. None of us are virologists, but all of us have seen the impact this has had on the intended path of central bank policy and markets.”

JEFFREY HALLEY, ANALYST, OANDA, JAKARTA

“The UK has paused flights from South Africa and five other neighboring countries, and we can expect more of this elsewhere. The complacency seen with the emergence of the delta variant in India being a lesson harshly learned.

“The one bull in the China shop that could truly derail the global recovery has always been a new strain of COVID-19 that swept the world and caused the reimposition of mass social retractions. All we know so far is the B.1.1.529 is heavily mutated, but markets are taking no chances.”

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'Fear has gripped the financial markets': What investors are saying about the new COVID-19 variant - The Globe and Mail
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