Global-Markets

Global stocks sell off as new Covid strain unsettles investors

Global stock markets and the oil price fell after a new strain of coronavirus sweeping through parts of Britain sparked fears over further lockdowns across the continent.

In Europe, the region-wide Stoxx 600 fell 2.7 per cent by mid afternoon in London, heading for its biggest daily drop since October, while London’s FTSE 100 fell 2 per cent.

On Wall Street, the S&P 500 fell 1.4 per cent in and the Nasdaq Composite dropped a similar amount. Earlier in the session the Vix, Wall Street’s “fear gauge” which measures expected volatility on the S&P, touched 30, its highest since early November, before falling back to 26.8.

The FTSE All-Share index fell 1.8 per cent, putting the global benchmark on course for its worst day since October 28.

On Saturday, UK prime minister Boris Johnson unveiled the tightest social restrictions since the March lockdown for more than 16m people in south-east England, including London. He also warned that a new mutation of Covid-19 was up to 70 per cent more transmissible.

The pound dropped 1.6 per cent to $1.33, on track for the biggest single-day tumble since September as continental European governments banned travel from the UK just as Brussels and Westminster officials are nearing the latest deadline in post-Brexit trade talks. Against the euro, the pound fell 1.2 per cent to €1.09.

Brent crude fell almost 4 per cent to just above $50 a barrel. The international benchmark had traded as high as $52 this month for the first time since coronavirus swept into Europe in the spring, boosted by optimism about coronavirus vaccines, but new lockdowns threaten oil demand.

“Investors fear the new strain is already in continental Europe and it is just a matter of time before we see fresh measures in Europe to contain it,” said Emiel van den Heiligenberg, head of asset allocation at Legal & General Investment Management. “We should assume it has spread to the US as well.”

Line chart of Stoxx 600 travel and leisure index showing European travel stocks give back some of recent rise

Gregory Perdon, co-chief investment officer at private bank Arbuthnot Latham, added that market moves could be more pronounced on Monday than they normally would have been because of thin trading volumes in the run-up to Christmas.

“There’s always a sense of caution about trading around Christmas as there’s concern over whether markets can accommodate normal order flows,” he said. “And all of us are trying to wind down.”

The broad sell off hit companies across sectors, with new S&P 500 constituent Tesla down 5 per cent and gambling and hotel groups Wynn Resorts and MGM Resorts losing more than 4 per cent.

Banking, energy and travel stocks were the worst performers in Europe. British Airways and Iberia owner IAG fell 8 per cent, while Dutch bank ING and Spain’s Banco de Sabadell dropped by almost 7 per cent.

In the US, bank stocks rose, however, after the Federal Reserve on Friday gave institutions the green light to recommence share buybacks.

An index tracking the dollar against a basket of six peer currencies rose 0.4 per cent, although other haven assets did not rally.

The 10-year Treasury yield, which moves inversely to its price, fell by just 0.01 percentage point to 0.93 per cent. The yield on the equivalent German dropped by the same amount to minus 0.58 per cent.

Credit: Financial Times

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