Covid variant puts stock markets on the wrong foot

At 10.56 am, 55 minutes later than planned, the KL592 from Johannesburg landed at Schiphol on Friday morning. Twenty minutes earlier the KL598 from Cape Town had already landed in Amsterdam.

These were the last flights from South Africa for the time being. Until at least Saturday 4 December, KLM will no longer fly thirteen times a week to Cape Town and Johannesburg. At the request of the European Commission, the Netherlands imposed a no-fly zone for several other countries in southern Africa at noon on Friday. The new corona variant found there may be more contagious than the delta variant and vaccines may not be as effective against this.

When the KL592 landed on Friday, the Air France-KLM share had already been down for two hours. With a price of around 3.76 euros per share, Air France-KLM is at its lowest price in nine years. Investors shy away from the idea of ​​new travel restrictions now that a new corona variant presents itself – how uncertain the consequences still are.

And that while the travel sector has just recovered somewhat from the corona crisis. Schiphol was again the busiest airport in Europe last week and a group of Dutch long-haul travel specialists even dared to ask the court to relax the orange travel advice that still applies everywhere outside of Europe.

And then the new South African virus variant B.1.1.529 suddenly presented itself, which was given the name Omikron by the WHO on Friday evening. Since the opening of the stock markets in Europe on Friday morning, the transport and tourism sector has been in free fall. Airlines such as Lufthansa and IAG, parent company of British Airways and Iberia, fell 13 and 15 percent. The German TUI, the largest tour operator in the world, lost 11 percent. Aircraft manufacturer Airbus, hotel chains and cruise lines also fell sharply on Friday.

The stock market fall due to Covid variant hits all sectors hard on Friday

It is not only the travel sector that has a potential problem. In the international financial markets, stock prices fell across such a broad front that the number of risers was hard to find. Initially, that was Just Eat Takeaway, which can flourish in a lockdown, because more people order meals outside the door. But even that fund ended up falling 2.7 percent. The other supplier at the door, PostNL, did better with a profit of 1.4 percent.

Among the other scarce risers was the financial trading house Flowtraders, which always benefits from higher volatility in prices, like a flower that flourishes mainly on the edge of the abyss. Flow Traders gained 2.9 percent. The VIX index, which reflects the turbulence of US stocks, rose to nearly 28.5 on Friday, its highest since March this year.

Vulnerable moment

The sharp fall in prices on the rest of the stock market can be explained. So far, it is expected that almost all Western economies this quarter, or the first quarter of next year, will be back to the level of just before the corona crisis. Investors have been anticipating this for some time now. So just as the global economy is emerging from the pandemic, a new, potentially dangerous and large-scale virus outbreak is hitting financial markets at a vulnerable time. And that was good to see.

The price of oil and other commodities, which had risen sharply this year, fell sharply on Friday. A barrel of Brent lost more than 10 percent and was less than $73. That is the lowest price since mid-September. Copper, generally a good indicator of international activity, fell 3.5 percent. Oil companies therefore had to drop significantly in price, with Shell at a loss of 6.3 percent. Total also had to fall by more than 6 percent. Supplier Fugro lost more than 8 percent. For the rest, companies that are mainly affected by the favorable economic prospects were affected. Steel group ArcelorMittal had to cut back by more than 7 percent. Randstad lost almost 5 percent.

Higher interest

One of the sectors where the now variant dealt the biggest blows on Friday was that of banks and insurance companies. Because the higher interest rates, from which these companies can benefit, are suddenly uncertain. With the economic recovery, inflation is also rising in many Western countries. Strong demand for goods and services has been thwarted for months by companies having trouble supplying those items. Prices are going up, and because oil and gas are also becoming significantly more expensive, that all adds up to an inflation that is now more than 6 percent in the US and more than 4 percent in Europe.

The financial markets have already adjusted to higher interest rates, because sooner or later central banks will have to fight inflation with tighter money policies. Banks and insurers are benefiting from higher interest rates, and their prices have recently risen sharply. But this also corrected on Friday. Because less-than-expected economic growth due to the new corona variant may mean that inflationary pressures will also decrease, and higher interest rates will not be needed as soon as expected.

The mood swings were clearly visible on the stock markets. Long-term government bond yields fell in both Europe and the United States. And the prices of banks and insurers largely lost their profits of recent times. ING collapsed by more than 6 percent. ABN Amro with 5.8 percent. Insurer Aegon plummeted by 9 percent, NN Groep (Nationale-Nederlanden) fell by 5.6 percent and ASR by 5 percent.

Even the fast growers in the chip industry did not escape Friday. Chip machine manufacturer ASML lost 3.6 percent, ASMI 2.6 percent. And then there were the real estate funds among the losers: new lockdowns mean less office occupancy and fewer retail customers. The longer the pandemic lasts, the greater the chance of sustainable behavioral changes: employees who were finally able to go back to the office and can now be confined to their homes again; consumers who trade in physical shopping for online shopping.

The idea that the Delta variant is not the last, but perhaps just one in a long series, could bring about a sustainable behavioral change in which commercial real estate plays a less significant role. Unibail-Rodamco, the most important real estate fund on the Damrak, plummeted by 12 percent on Friday. Vastned and Wereldhave were down almost 4 percent.

And so the AEX index closed the day on which the now variant appeared on the financial markets with a loss of 3.2 percent. Paris had a harder time, with the CAC-40 falling 4.9 percent, as did Madrid (-5.2 percent) and Milan (-4.4 percent). And the mood didn’t improve in the US at the end of the day, with losses of nearly 3 percent for the Dow Jones and 2.4 percent for the S&P-500.

Investors had a rough day, but that may be even more true for the passengers on board the last two flights from South Africa. They had to wait for hours on Friday before they could leave Schiphol. The few hundred passengers were tested in the afternoon. Those who had a negative test result also had to quarantine for ten days. The Dutch can continue to fly to and from South Africa, the Ministry of Infrastructure and Water Management reported on Friday. The entry ban back to the Netherlands does not apply to Dutch nationals and other EU citizens.

Just as the global economy appeared to be moving somewhat away from the pandemic, another potentially large-scale virus outbreak hit financial markets at a vulnerable time on Friday. The AEX index plunged more than 3 percent.

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source https://pledgetimes.com/covid-variant-puts-stock-markets-on-the-wrong-foot/