BREAKING : South Africa Health Minister says reaction to COVID variant is unjustified

Storm in a teacup?

  • Reaction of UK and other countries in Europe to COVID-19 variant is unjustified
  • Preliminary studies do suggest that the variant may be more transmissible
  • Reactions of some countries imposing travel bans is against the norms and standards of the WHO
  • Confident that vaccine remain major bulwark in terms of protecting us
However, if the virus is more transmissible then the concern is justified to some extent. This will not reassure thin jumpy markets.

UK National Virology Consortium on new variant mutations

Mutation news

  • 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.

Two suspected cases of the new COVID-19 variant have been reportedly detected in Belgium

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.

EU to propose to activate emergency brake to stop air travel from southern African region

EU president, Ursula von der Leyen, remarks

Her tweet:

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.

No let up in the dour mood as Treasury yields sink further

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.

Oil may be the cleanest way to trade covid fears but beware OPEC

OPEC+ meeting is on Thursday

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.

Yen crosses another leg lower as Treasury yields fall further

Sentiment worsens

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.
Sentiment worsens
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.

A stark reminder that the bond market is still in charge

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:
Rates open lower

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.

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