Europe

European equity markets have undergone a collective bout of end-of-week hypoxia, on the back of concerns that this new more transmissible Covid -19 “Nu” variant could well derail the progress being made on tackling the pandemic when it comes to effective vaccines and treatments of the virus.

The intensity of today’s reaction is probably being exacerbated by the fact that a lot of investors had mentally checked out for this week, with the US being off for Thanksgiving yesterday, against the backdrop of a quiet market session yesterday, with US markets only back for half a day.

The news of the spread of the new variant, coming on top of the ongoing problems currently being experienced in Europe with Delta, is particularly unwelcome and has seen a meltdown in the usual suspects of travel and leisure stocks, as well as companies associated with the economic rebound.

The news that there may well be a case in Belgium hasn’t exactly helped sentiment either, however, it is still early days, and we still need to be cautious, as there is still a lot we don’t know about this variant.

The FTSE100 is down heavily, but so are the DAX and CAC40, with the two main European benchmarks posting their biggest weekly declines this year, as investors not unreasonably choose to shoot first and ask questions later, especially so close to year-end, and given the size of the gains seen so far this year.

Airlines have been hit the hardest with British Airways owner IAG initially plunging 20% on the open before pulling back some of its losses. EasyJet has also fallen sharply, ahead of its full-year results next week, along with TUI and Ryanair.

Rolls Royce is also getting a beating as various countries look at tightening entry requirements on new arrivals, which in turn could see fewer people looking to fly, thus affecting its EFH (engine flying hours) targets for this year.

The sharp slide in oil prices is also impacting on the big cap energy companies, with BP and Shell both falling hard, while the sharp fall in bond yields is hitting banks, led by Standard Chartered and Lloyds Banking Group.

We are seeing some gainers with Ocado higher given its previous reputation as a lockdown winner. Croda International is also higher, given its position as a key supplier in vaccine production for the Pfizer/BioNTech vaccine.

US

US markets have taken their cues from today’s plunge in Asia and European markets as they return from their Thanksgiving break, and are faced with a completely different angle on the Black Friday theme, with sharp early falls in what is set to be a holiday-shortened trading session. I

It t’s pretty much red across the board, although the Nasdaq is outperforming relative to the rest, with the likes of Zoom and Peloton seeing some decent gains, as concerns about this new variant give a boost to these lockdown winners.

We’ve also seen decent gains from the vaccine makers, with Moderna and Novavax higher while Pfizer is also up after saying it could make a new vaccine within 100 days if required to do so.

Airlines and travel stocks are also getting pummelled, American Airlines and Delta, along with Carnival Cruise Lines.

FX

The US dollar has taken a hit, largely on the basis that a muddied recovery picture reduces the room for maneuver when it comes to not only a faster taper but also the prospect of rate hikes next year. The greenback is being particularly hard hit on the back of lower yields and some position readjustment heading into the weekend, with the main losses today being against the Japanese yen, Swiss franc and euro.

Today’s events also give the Bank of England wriggle room when it comes to whether they look at raising rates when they meet next month, with Chief economist Huw Pill seeding the ground for possible disappointment when the MPC meets just before Christmas

Commodities

Brent crude oil prices have slumped sharply over concerns that this new mutation could add to the pressure on demand that is already coming from the events in Europe this week. US crude oil prices slipped back to their lowest levels in two months, in what is perhaps unfortunate timing when it comes to this week's SPR release. While no one can predict the future, the timing of this week’s release was always questionable ahead of next week's OPEC meeting. Looking at it now, it seems even more so.

Gold prices, on the other hand, have received a lift, although they are still on course to finish the week sharply lower.

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