© Reuters. FILE PHOTO: An investor puts his hands on the back of his head in front of an electronic board displaying stock information at a brokerage house in Hefei
From Sujata Rao
LONDON (Reuters) – Global stocks fell, the dollar strengthened and volatility spiked across asset classes as a rapidly spreading new strain of coronavirus in the UK threatened to torpedo market optimism about a vaccine-fueled recovery in economic growth.
Wall Street was tilted to open much more deeply.
The strain, said to be up to 70% more transferable than the original, has locked around 16 million Britons harder and pushed several countries to close their borders with the UK, effectively overshadowing the positive US news of a much-needed stimulus package.
The closure of international travel and the flow of goods to and from the UK threaten the chaos of UK homes and businesses.
Simultaneously with the lack of a post-Brexit trade deal before December 31, it had the pound drop 2.5% below $ 1.32 at one point, despite the currency reclaiming some of the $ 1.3285 trade losses by 1250 GMT .
Markets have largely weakened from previous lows, although most remained firmly in the red. UK stocks were down just over 2%, while UK banks Lloyds (LON 🙂 and Barclays (LON 🙂 suddenly lost more than 6% before recovering slightly.
European stocks fell 2.5%. Travel and leisure stocks lost 3.5%.
"Our base case, based on what we know, is that we will remain under strict lockdowns for weeks into the New Year," said Emiel van den Heiligenberg, Head of Asset Allocation at Legal & General Investment Management.
He said the burden has likely already arrived in Europe, meaning that "countries that are not locked have no choice but to do so quickly and the markets are reacting to that."
The sell-offs sparked a general spike in volatility, a measure of volatility in the price of an asset class, making Wall Street's "fear indicator" its highest since early November.
Currency volatility also rose, with sterling volatility approaching its nine-month high overnight
Futures for the fell 1.8%, making up for some previous declines, while the Nasdaq futures fell 1.2% ().
As safe haven assets such as German and US Treasuries rebounded, gold, which usually rises in turbulent times, fell as much as 1.3% before reclaiming some of that loss.
The weakness of a day of large stock sales will relive memories of the March market slump when investors rushed to sell assets for the dollar.
On the positive side, the leaders of the U.S. Congress have finally agreed on a roughly $ 900 billion COVID-19 relief bill.
LGIM's Van den Heiligenberg also predicted that the introduction of vaccines would limit the market disadvantage.
"A correction is warranted, but a very large sell-off would surprise us. With the vaccine, we should be able to think about normalization again from March to April," he added.
The stock sell-off sent investors scurrying for the US dollar, pushing the greenback index to 90.8, well below last week's 2-1 / 2-year low.
The euro even fell 1% at one point to $ 1.216.
US and German bond yields fell and US 10-year yields fell six basis points. UK two-year borrowing costs hit record lows
The two-year / ten-year US Treasury yield curve, another measure of growth expectations, has flattened a touch. It had risen to its steepest level in nearly three years on Friday, amid optimism about the business cycle.
The turmoil could revive some bullish bets on oil that were expected to benefit from a growth surge over the next year.
Futures fell 3% as copper fell from the $ 8,000 per tonne mark it had recently scaled for the first time since 2013.
"The message is clear: Oil prices are still very high and will continue to be at the mercy of the pandemic," said Stephen Brennock of oil broker PVM.