- No mutations in the new variant that would impact the effectiveness of antiviral molnupiravir
- More concern about monoclonal antibodies
This has not halted the steady risk off tones which are now continuing. Pretty unclear what it means to those outside of the National Virology Consortium. Expect scientists to be going through this with a fine tooth comb over the weekend. Oil at fresh lows, Dow at fresh lows, VIX pushing higher.
That would make Belgium the first European country to detect the strain
According to The Telegraph here
. As mentioned earlier, as much as the EU says it would want to shore up border controls to prevent the latest virus variant from entering, little do they know that it has already been spreading in the region.
The worry here is that the same can be said for the rest of the world too.
As far as countries go, that would see Belgium add to the list of South Africa, Botswana, and Hong Kong once confirmed.
WHO says that will evaluate whether it will be a “variant of interest” or a “variant of concern”
Adding that so far there are nearly 100 sequences of the variant reported and early analysis shows that it has “a large number of mutations” requiring further study.
EU president, Ursula von der Leyen, remarks
The @EU_Commission will propose, in close coordination with Member States, to activate the emergency brake to stop air travel from the southern African region due to the variant of concern B.1.1.529
This adds to the growing list of countries across the globe that are halting arrivals from South Africa and its neighbours amid fears of the new COVID-19 variant.
10-year yields down 10 bps to below 1.55% on the day
Fears surrounding the new COVID-19 variant is dominating markets at the moment and bonds are very much bid amid a flight to safety.
The drop in 10-year yields today reverses all the hard work by bond sellers this week and while the move is sizable, it comes with some caveats.
One, thinner market conditions may be exacerbating the drop in yields. Two, this throws a curveball to the straightforward narrative that central banks can easily look to rate hikes to counteract surging inflation pressures.
The latter issue may be irrelevant if the new COVID-19 variant proves to be a non-threat in the weeks ahead but we will see. As such, it offers a new element that traders have to consider amid the ongoing inflation debate looking to next year.
Elsewhere, even 2-year yields are down by 8 bps on the day and look set for its worst one-day drop since March last year (at least in terms of bps):
The drag in yields is also putting further pressure on yen pairs with USD/JPY falling to fresh lows on the day just below 114.50 at the moment.
OPEC+ meeting is on Thursday
Joe Biden may get the lower gas prices he wanted after all, but not for the reason he hoped for.
Some trades around covid worries have proven to be though but a fairly consistent one is that covid fears curb gasoline demand. Oil is down $1.79 to $76.51 now, wiping out the post-SPR ‘buy the fact’ rally.
Oil has been stumbling lately and this won’t help. The caveat is that OPEC+ might be looking for a reason not to pump the planned additional 400k bpd and now they might have it.
On the FX side, CAD is tracking closely to WTI and with Canada’s openness to lockdowns, that’s another interesting way to look at the trade.
Again, I think it’s too early for anyone to make any kind of conclusions about this variant but by the time it’s clear the market will already ahve moved.
The more the market learns about the latest covid variant, the more worried it gets.
US 10-year yields are now down 8 basis points to 1.567%. Just on Wednesday, the Fed’s Daly dropped a bombshell by hinting at support for a faster taper but that could quickly be off the table.
USD/JPY is down 68 pips to 114.67 and yen crosses are down significantly more, led by AUD/JPY which is down 108 pips to 81.83. That chart isn’t looking pretty as it falls into an abyss of technical support.
I suspect these moves will peter out without any additional information on the variant. After all, this is based on a spike in South African cases and genomic sequences of fewer than 100 cases.
Rates open lower
The US bond market was closed for Thanksgiving but opened again just after midnight GMT and yields fell 3-6 basis points across the curve.
My suspicion is that this is all about worries about the new covid variant but whatever it is, and despite an extremely thin market, it’s dominating price action in everything.
In FX, USD/JPY has fallen 50 pips on the rate move:
At times, price action can create narrative and I think we’re going to be hearing much more above covid in the day ahead because some South African officials have sounded the alarm.