Global stock markets and the price of oil fell after a new strain of coronavirus sweeping through parts of Britain raised fears of further lockdowns across the continent.
In Europe, the regional Stoxx 600 fell 3% early in the afternoon in London, heading for its biggest daily decline since June, while London’s FTSE 100 fell 2.7%.
On Wall Street, the S&P 500 fell nearly 2% in early trading and the Nasdaq Composite fell by a similar amount. Earlier in the session, the Vix, Wall Street’s “fear gauge” that measures expected volatility on the S&P, hit 30, its highest since early November, before falling back to 26.8.
British Prime Minister Boris Johnson on Saturday unveiled the toughest social restrictions since the March lockdown for more than 16 million people in the south-east of England, including London. He also warned that a new mutation in Covid-19 was up to 70% more transmissible.
The pound fell 1.5% to $ 1.33, on course for the biggest one-day drop since September, as governments in mainland Europe banned travel from the UK as officials of Brussels and Westminster are approaching the final deadline for post-Brexit trade talks. Against the euro, the pound fell 1% to € 1.09.
Brent crude fell almost 4 percent to just over $ 50 a barrel. The international benchmark had traded as high as $ 52 this month for the first time since the coronavirus swept across Europe in the spring, spurred by optimism over coronavirus vaccines, but new lockdowns threaten demand for oil.
“Investors are concerned that the new tension is already in continental Europe and it is only a matter of time before we see further measures in Europe to contain it,” said Emiel van den Heiligenberg, Head of Allocation of assets at Legal & General Investment Management. “We should assume that it also spread to the United States.”
Gregory Perdon, co-chief investment officer of private bank Arbuthnot Latham, added that market movements could be more pronounced on Monday than they normally would have been due to weak trading volumes heading into Christmas.
“There is always a sense of caution about trading around Christmas, because there is some question as to whether the markets can accommodate normal order flows,” he said. “And we are all trying to relax.”
The dollar and the price of US government debt rose, as investors retreated to assets seen as havens. An index that tracks the dollar against a basket of six comparable currencies rose 0.5%.
The 10-year Treasury yield, which moves inversely to its price, fell 0.04 percentage point to 0.91%. The UK’s 10-year gold yield fell by the same amount to 0.19%.
An agreement by U.S. lawmakers on a nearly $ 900 billion economic stimulus package to support small businesses and fund direct payments to U.S. families suffering from the coronavirus pandemic has failed to brighten market sentiment.
“The new concern about the virus has overshadowed the positive news that US lawmakers have finally struck a deal,” after months of wrangling, commented Mark Haefele, chief investment officer at UBS Wealth Management.
“The deal on a $ 900 billion Covid relief bill meets our baseline expectations,” Morgan Stanley analysts said. They added, however, that they were monitoring the “legislative language” around the Federal Reserve. emergency loan facilities as “a greater risk in the long term”.
Additional reporting by Philip Georgiadis