Risk-off sentiment dominates as markets fear the worst

The latest Covid variant has brought a fear-based selloff for markets today, with airlines, banks, and restaurants feeling the pinch. Fears of future lockdowns may prove to be somewhat hasty, yet the period ahead looks set to be dominated by caution from investors.  

• Global stocks tumble over Covid strain fears 
• December rate hike looking unlikely for the BoE 
• Tech likely to outperform as traders shift from reopening stocks back to growth 

The Black Friday sales have extended to global stocks today, with a huge risk-off move sparking weakness across the board for equities. Fears around the new variant found in South Africa bring concern that we could be on the cusp of yet another wave of infections and subsequent restrictions. Understandably, travel stocks have been at the forefront of this selloff, with European nations already laying out plans to restrict flights from countries that have experienced cases of this new dangerous Covid strain. However, market losses have been widespread, with the prospect of future restrictions bringing caution for most of the so-called reopening stocks.  

Banks are also suffering heavy losses today, with traders weighing up the implications for monetary policy. Expectations around a December rate hike from the Bank of England have largely gone out the window for now, with little chance we are going to see the MPC tighten policy if this strain does result in another bout of lockdowns. Thus banks are faced with a twin threat of continued low margins, and economic hardship if restrictions are reimposed. Interestingly, we have seen a sharp upside move for EURGBP as traders reassess their expectations of a ramp-up in UK interest rates in the next 12-months.  

With Pfizer stating that it could take up to two weeks for them to ascertain just how well their vaccine can help limit the effects or spread of the new Covid strain, we are likely to see plenty more volatility as traders consider the implications if initial warnings are correct. We are seeing a less comprehensive selloff for the Nasdaq, with tech stocks likely to outperform throughout the coming period. However, the ongoing logistical concerns seen over recent months do raise the risk that some 2020 pandemic winners fail to take advantage of any near-term push back towards digitally-focused retailers.