(Bloomberg) — U.S. stocks slid as a post-Thanksgiving selloff spread across global markets amid fears a new coronavirus variant identified in South Africa could spark fresh outbreaks and scuttle a fragile economic recovery. Haven assets rallied.
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Equity benchmarks extended losses. The S&P 500 Index dropped more than 1.5% while the rout in the Dow Jones Industrial Average and Russell 2000 exceeded 2%. Travel and leisure stocks tumbled, while stay-at-home stocks gained. That helped ease losses in the Nasdaq 100, which was down about 1%. Treasuries suggested traders were cutting bets on monetary tightening by the Federal Reserve. The Japanese yen emerged as the main haven currency of the day, with the dollar falling. Oil tumbled and gold climbed.
The World Health Organization and scientists in South Africa were said to be working “at lightning speed” to ascertain how quickly the B.1.1.529 variant can spread and whether it’s resistant to vaccines. The new threat adds to the wall of worry investors are already contending with in the form of elevated inflation, monetary tightening and slowing growth.
“It’s terrible news,” Ipek Ozkardeskaya, a senior analyst at Swissquote, said in emailed comments. “The new Covid variant could hit the economic recovery, but this time, the central banks won’t have enough margin to act. They can’t fight inflation and boost growth at the same time. They have to choose.”
Read: What We Know About the Virus Variant Rocking Markets: QuickTake
Europe’s equity benchmark headed for the biggest drop in 13 months. Ten-year Treasury yields shed nine basis points while the Japanese yen was poised for the biggest gain since investors’ March 2020 rush for safety. Crude oil to emerging markets completed this picture of mayhem.
“This is a big shock for people waking up (and) seeing the news,” said Carl Dooley, the head of EMEA trading at Cowen. “Uncertainty and fear will remain high and maybe we aren’t going back to new highs straight away.”
Global travel stocks were in particular focus after the European Union, U.K., Israel, and Singapore placed emergency curbs on passengers from South Africa and the surrounding region. British Airways parent IAG SA tumbled as much as 21% in London. Carnival Corp. and Royal Caribbean Cruises Ltd. lost at least 9% each in New York premarket session. Stay-at-home stocks such as Zoom Video Communications Inc. jumped in the early trading.
The selloff comes after global markets adopted a Jekyll-and-Hyde posture for months, with equities rallying to newer records even as concerns intensified over a toxic combination of high inflation and slower growth. Investors poured almost $900 billion into equity exchange-traded and long-only funds in 2021 — exceeding the combined total from the past 19 years.
“The problem is that the market has gone up a lot this year,” Cesar Perez Ruiz, chief investment officer at Pictet Wealth Management, said in emailed comments. “Valuations are high and given the uncertainties, the market sells first and asks questions later.”
Rate Wagers Cut
Traders pushed back the expected timing of a first 25-basis-point rate increase by the Federal Reserve to September from June, while briefly pricing out any more hikes unit 2023.
They also bet on less than a 10-basis-point hike by the Bank of England next month, compared with 35 basis points projected a month ago. They called for seven basis points of tightening by the European Central Bank by December 2022 as against nine basis points seen Thursday.
The yen and Swiss franc found bids from safety-conscious traders, while the dollar posted a modest loss. A gain for the euro, the biggest component of the Bloomberg Dollar Spot Index, also curbed the greenback.
MSCI Inc.’s Asia-Pacific equity gauge slid to the lowest since early October, with Japan and Hong Kong gauges dropping at least 2% each.
Some of the worst-hit assets were in emerging markets. The currency of South Africa, where the virus strain was identified, lost 1% and the Turkish lira dropped 2.4%. The MSCI EM Currency Index fell to a six-week low.
While the selling continued unabated, some investors said it’s important not to get carried away by short-term jitters.
“Markets have had a very strong run over the last 12 months and so it is no surprise to see a reaction like this,” said Dan Boardman-Weston, CIO at BRI Wealth Management. “If this is going to take the world backward from a Covid perspective, then it’s likely that inflation will abate and monetary policy will stay looser for a long time which is likely to be a positive for markets in the medium term.”
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
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The S&P 500 fell 1.7% as of 9:46 a.m. New York time
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The Nasdaq 100 fell 1%
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The Dow Jones Industrial Average fell 2.5%
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The Stoxx Europe 600 fell 2.9%
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The MSCI World index fell 1.8%
Currencies
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The Bloomberg Dollar Spot Index fell 0.2%
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The euro rose 0.8% to $1.1294
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The British pound was little changed at $1.3329
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The Japanese yen rose 1.5% to 113.61 per dollar
Bonds
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The yield on 10-year Treasuries declined 12 basis points to 1.52%
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Germany’s 10-year yield declined seven basis points to -0.32%
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Britain’s 10-year yield declined 13 basis points to 0.84%
Commodities
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West Texas Intermediate crude fell 7.8% to $72.24 a barrel
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Gold futures rose 0.9% to $1,802.50 an ounce
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