In Class Book

Stocks, US Treasury yields and oil sink as new COVID-19 strain rattles markets.

Stocks, Treasury yields and oil sank Friday while the yen jumped as a new Covid-19 strain discovered in southern Africa sent a wave of caution across global markets.

An Asia-Pacific equity gauge was set for the worst slide since March, with Japan and Hong Kong underperforming and travel shares among the biggest decliners. U.S. and European futures fell and the 10-year Treasury yield dropped to 1.56{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}.

The World Health Organization and scientists in South Africa are studying the recently identified variant described as very different to previous versions and of serious concern. The U.K. and Israel banned flights from South Africa and some neighboring countries. Hong Kong confirmed two cases of the strain.

The dollar was at a 16-month high, while South Africa’s rand weakened and commodity currencies retreated. Crude shed 3{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} and gold rose. U.S. markets, closed Thursday for Thanksgiving, will have a shortened Black Friday session.

The detection of the strain comes on top of concerns in markets about high inflation and the prospect of quicker exit from ultra-loose monetary settings. Global shares are up about 16{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} this year, weathering a plethora of risks after investors poured almost $900 billion into equity exchange-traded and long-only funds in 2021 — topping the combined total from the past 19 years.

“It’s a scary headline” about the virus variant, so it may have caused a knee-jerk reaction, said Kyle Rodda, an analyst at IG Markets Ltd. He added that “North America off the desks means there’s a wall of buyers missing” and that thinner markets make for more pronounced moves.

Variant ‘playbook’

December futures on the Cboe Volatility Index, a gauge of implied equity swings for the S&P 500, advanced as traders braced for turbulence when U.S. markets reopen.

Justin Tang, head of Asian research at United First Partners, pointed out that “the world has gone through this before with delta,” adding “there is already a playbook for such situations” and that “mutations are expected and not something unknown.”

Meanwhile, Goldman Sachs Group Inc. economists said they expect the Fed to tighten policy faster than previously anticipated, including doubling the pace at which it tapers bond purchases to $30 billion a month from January. They see an interest-rate liftoff from near zero in June.

In China, regulators have asked Didi Global Inc.’s top executives to devise a plan to delist from U.S. bourses, people familiar with the matter said. That may revive fears about Beijing’s intentions for its giant technology industry. A gauge of Chinese tech stocks slid.

The Chinese economy continued to slow in November with car and homes sales dropping again as a housing market crisis dragged on, according to Bloomberg’s aggregate index of eight early indicators.

For more market analysis, read our MLIV blog.

Here are some key events this week:

• Bank of England Governor Andrew Bailey speaks with Mohamed El Erian at a Cambridge Union event. Thursday
  Some of the main moves in markets:

Stocks

• S&P 500 futures fell 1{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} as of 5 a.m. in London. The S&P 500 rose 0.2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} on Wednesday
• Nasdaq 100 futures fell 0.5{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}. The Nasdaq 100 rose 0.4{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} on Wednesday
• Japan’s Topix index dropped 2.2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}
• Australia’s S&P/ASX 200 index fell 1.7{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}
• South Korea’s Kospi index shed 1.6{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}
• Hong Kong’s Hang Seng index declined 2.2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}
• China’s Shanghai Composite index lost 0.6{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}
• Euro Stoxx 50 futures tumbled 2.1{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}

Currencies

• The Bloomberg Dollar Spot Index rose 0.2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}
• The euro was at $1.1223, up 0.1{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}
• The Japanese yen was at 114.72 per dollar, up 0.6{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}
• The offshore yuan was at 6.3934 per dollar, down 0.1{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}

Bonds

• The U.S. 10-year Treasury yield fell eight basis points to 1.56{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}
• Australia’s 10-year bond yield fell nine basis points to 1.78{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}

Commodities

• West Texas Intermediate crude fell 3{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} to $76.06 a barrel
• Gold was at $1,797.75 an ounce, up 0.5{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}