MARKET UPDATE: Risk-off further materialises as COVID jitters magnify in anaemic Thanksgiving liquidity

MACRO PICTURE

• COVID jitters have hit risk sentiment in holiday-thinned liquidity. The new and more evolved South African variant prompted the UK, Singapore, and Israel to expand their travel red lists to include some African nations (Israel reported its first case of the new COVID-19 variant known as B.1.1.529). Japan also imposed tighter border restrictions. China’s Shanghai city see flights impacted by its own outbreak. Europe also tackles its surge in daily cases - German Green Party's Baerbock (incoming Foreign Minister) does not rule out a German lockdown, according to Spiegel. EU Commission President von der Leyen is also to propose activation of the emergency air brake, to halt travel from southern Africa due to the B.1.1.529 COVID-19 variant.


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  The macro calendar is relatively light and there are early closures in the US on account of the Thanksgiving holiday which will naturally reduce liquidity in the market and therefore could exacerbate some of the moves throughout the session. Headlines are likely to centre on various nations preventing travel from South Africa whilst potentially imposing more stringent COVID measures domestically.


• In terms of the variant itself, early indications suggest the new variant has shown a high number of mutations and is said to be the most evolved strain so far. Further evidence on the COVID strain is still lacking given that it is in its infancy and therefore any further clarity on the spread of the variant and its potential to evade vaccines will be of great interest to the market and likely be the main driving force of price action today.


• WHO Health Organisation to convene an experts' meeting at 11:00GMT/06:00EST today to assess the new COVID-19 variant B.1.1.529; at this point in time, they do not comment on nations imposing travel restrictions on southern African areas

RISK ASSETS

• European and US equity futures continue to decline, with the cyclically-bias RTY (-5.0%) heavily lagging vs the ES (-2.0%), YM (-2.5%), and NQ (-1.3%); DAX Dec 21 (-3.6%), Euro Stoxx 50 Dec (-4.1%). APAC cash bourses head to the Asia close with heft losses; Nikkei 225 (-3.2%); Hang Seng (-2.9%).


• NOTE: RTYZ1 overnight limit down (-7%) at 2167.80


• Risk FX continue to extend on the APAC downside; AUD, NZD, CAD remain the laggards whilst ZAR underperforms in the EM space amid the new variant.


• Losses in oil have exacerbated, WTI Jan and Brent Feb now under USD 74/bbl and around USD 77/bbl respectively, -5.7% and -4.7% respectively.


• Base metals extend on losses across the board, LME copper -2.5%.


• Crypto markets are also taking a hit with Bitcoin (BTC) down around -6% around USD 55.5k.

HAVEN ASSETS

• Fixed income futures have continued grinding higher in a continuation of the APAC price action; 10yr UST Dec +32 ticks (US 10yr yield -10bps but still north of 1.50%); Bund Dec +100 ticks; Gilts Dec +120 ticks; BTP Dec +80 ticks.


• Haven FX (JPY and CHF) markedly outperform (to the detriment of the USD); USD/JPY prints a current daily range between 113.66-115.37.


• Spot gold extends on gains above USD 1,800/oz after topping the 100 DMA (1,792.95/oz), 200 DMA (1,791.38/oz), 50 DMA (1,790.13/oz) overnight.

STOCK SPECIFIC: 30 mins into the European cash open; the sector configuration sees all sectors deep in the red and the overall picture a defensive one.

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  TRAVEL & LEISURE: IAG (IAG LN) -13%, easyJet (EZJ LN) -11.2%, Deutsche Lufthansa (LHA GY) -11%, Air France(AF FP) -8%, Carnival (CCL LN) -14%.


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  AERO INDUSTRIALS: Airbus (AIR FP) -11%, Rolls-Royce (RR/ LN) -12%.


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  OIL & GAS: Shell (RDSA LN) -5.5%, TotalEnergies (TTE FP) -5.3%.


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  DELIVERY NAMES:  Deliveroo (ROO LN) +4%, Delivery Hero (DHER GY) +4.2%, Ocado (OCDO LN) +2.9%


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  BANKS: Barclays (BARC LN) -3.9%, Lloys (LLOY LN) -5.4%, BNP (BNP FP) -6.4%, ING (INGA LN) -6.6%, BBVA (BBVA SM) -3.4%, Deutsche Bank (DBK GY) -5.5%

Analysis details (08:35)

B.1.1.529 COVID-19 variant (expected to be named Nu) – what we know

• Regarded as the most heavily mutated variant of the Coronavirus, thus far, as it has 32 mutations in the spike protein and 50 overall. More specifically, scientists have highlighted that there are 10 mutations vs 2 in the Delta variant regarding the receptor binding domain, which is the portion of the virus that makes initial contact with cells.


• Note, a significant number of mutations may not necessarily be a ‘negative’ as it is dependent on how these mutations function, which scientists are yet to establish.

Detectability

• Tulio de Oliveria, the Director of the Centre for Epidemic Response & innovation (CERI), South Africa, has written that the variant can be detected by a normal PCR test and as such it will be "easy for the world to track it".

Transmission

• Oliveria, explains that the new variant is spreading very quickly, in under two-weeks it is now dominating all infections in South Africa following the Delta waves domination – writing that it the variant is “now at 75% of last genomes and soon to reach 100%”.


• Additionally, the virus contains mutations that have been seen in other variants and appear to make transmission easier.


• Outside of Africa, two cases have been reported in Hong Kong, one from a traveller from the region and another who was quarantining in the adjacent hotel room. Most recently, a case has been reported in Israel.


• In response to this, the UK has placed much of southern Africa on the red list, with Israel India, Japan and Singapore also taking similar measures. Additionally, EU Commission President von der Leyen is to propose activation of the emergency air brake, to halt travel from southern Africa.

Vaccines

• It is too early to accurately determine the vaccine response to the new variant. However, the significant number of variants increase the likelihood that current vaccines, which were designed with the original COVID-19 strain in mind, may be less effective.


• Known variants include those that make it more challenging for antibodies to recognise their presence.

26 Nov 2021 - 08:35- Important- Source: Newsquawk