Markets Drop on Fears B.1.1.529 Covid Variant Could Evade Vaccines

The B.1.1.529 Covid variant has sent markets into a tailspin over fears it could escape current vaccines and force economies back into lockdowns.

New Covid mutations are appearing all the time but most are not a threat. However, B.1.1.529 Sars-Cov-2 stands out because of its very high number of mutations with surveillance in South Africa showing it already dominant in new infections.

Stock markets are down more than 3% and US futures are off around 2%. It was a similar story on Asian markets, with the Nikkei shaving 2.5% off share values.

Bond yields were also moving lower as investors turn to safe havens.

Oil prices are also taking a hammering with the WTI benchmark down 6.3% ($73)  and Brent 5.1% ($77). Major industrial metal copper is losing 2.5%.

Bitcoin slumps into bear market

Another bigger loser is the crypto market, with bitcoin failing to break its correlation with risk assets. The top crypto is down 4% to $54,984, which means it is now trading more than 20% below its all time high at $68,000, putting the digital asset into bear market territory.

Altcoins are generally falling even harder, with Ethereum erasing 6.4% to hover just above $4,000. Crypto.com which has been on a stellar run following its branding deal on the Staples Center is falling hard after topping out yesterday – it is down 16% in the past 24 hours at $0.68.

Gold is the winner at the moment as it edges higher by 1.2% to $1,805 after its November rally had begun to peter out over the past week.

B.1.1.529 Covid variant accounts for 90% of new cases in South Africa

The  B.1.1.529 Sars-Cov-2 variant was first found in Botswana and has spread to other parts of Southern Africa, in particular to the Johannesburg/Pretoria region of South Africa, where experts fear means it will be only a matter of time before it shows up across the country given the number of people that travel through the region.

The UK, Europe and Israel have banned flights coming from South Africa and neighbouring countries.

The variant has also been found in Hong Kong, where there are known to have been two cases and in Israel where there is one confirmed case. Israel is reported to be on the verge of implementing a state of emergency in the country.

Concern about the new strain is centred on its large number of mutations – as many as 50 – that have changed the make-up of the spike proteins and therefore could potentially enable the variant  to evade the vaccine. It may also be more infectious than even the Delta variant, which has proven to be the most transmissible variant so far.

Travel stocks hurting” – Covid resurgence last thing industry needed

Travel and airline stocks are being hit hard with the travel industry only now beginning to recover from the earlier stage of the global pandemic. IAG – owner of British Airways – is down 21% and cruise line Carnival 12%.

Susannah Streeter, an analyst at top UK broker Hargreaves Lansdown, adds: “easyJet, Ryanair, TUI and Wizz Air also plummeted in early trading, registering much sharper falls than earlier drops of Quantas on Australia’s ASX which fell 5.5%, and Hong Kong listed Cathay Pacific which was 4.1% lower. ”

She continued: “The immediate way the tough restrictions were imposed was a reminder of just how tied companies’ fortunes are to snap government decisions and the latest twists in the trajectory of the virus.

“This fresh fall in confidence is the last set-back the industry needed given that it’s already faced with lockdowns in Europe. There had been high hopes of a bounce back in bookings, with Black Friday travel deals launched by airlines including British Airways and easyJet to lure people back into seats.

“But it’s going to take much more than a discounted ticket to calm nerves and restore optimism, particularly as many travellers have become weary of the rounds of cancellations they’ve experienced over the much of the last two years.”

WHO meets to decide next moves and “variants of concern” designation

Even though the ability to develop vaccines relatively quickly to combat Covid, this could not be done quickly enough to stop this particular variant from spreading.

However, full details about the variant are not yet known, so market panic may yet prove to be misplaced. The World Health Organisation has scheduled an emergency meeting today, Friday, to bring together what is known and discuss responses. If the variant is designated a variant of interest or concern then it will be named “Nu”.

Up until yesterday there had been 100 cases of the B.1.1.529 detected in South Africa. Although that number is small, it is now the dominant strain among new infections and 90% of the new cases in the Jo’burg region are of the new strain.

Little is known about its exact origins but one theory is that it may have developed in an immuno-compromised person with HIV. South Africa has 8 million people with HIV.

Dan Boardman-Weston, CIO at BRI Wealth Management, emphasised the need to wait and see if the variant turns out to be as problematic as the market’s initial reaction suggests. “Equity markets are sharply lower this morning after the emergence of a new covid variant in southern Africa.

“The new variant appears to have the potential to be more transmissible and to evade vaccines but it’s important to emphasise that nobody is completely sure about this yet,” Boardman-Weston said.

He also said it could help to keep the lid on inflation and keep monetary policy looser for longer, adding: “We think it’s too soon to quantify the likely impact of this new variant but markets have had a very strong run over the last 12 months and so it is no surprise to see a reaction like this.

“It’s important to note that if this is going to take the world backwards 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.”

Despite record high stock markets, investors face a wall of worry

The emergence of the new variant comes at a time when investors are already contending with mounting worries, despite stock markets trading at record highs.

Economic recovery was already showing signs of starting to slow, particularly in Europe which is struggling with a wave of Covid infections. Inflations is rising across the globe and the how central bankers should respond is difficult for investors to gauge given the uneven nature of the recovery, but there are fears central bank failure to tighten quickly enough could see inflation get out of control.

Market participants will also be worried that this latest scare shows that the failure to rollout vaccines across the world population means there will continue to be an ever-present threat of dangerous variants emerging.