US stocks tumble amid global selloff


In Europe, equities closed down the most since June 2020
Chief Investment Office29 Nov 2021
    Photo credit: AFP Photo


    US

    US stocks slid in a selloff across global markets amid growing fears a new coronavirus variant identified in South Africa could spark fresh outbreaks and scuttle a fragile economic recovery. Haven assets surged.

    It is the worst post-Thanksgiving performance for the S&P 500 Index since 1941, when President Franklin D. Roosevelt signed a bill to officially establish the fourth Thursday in November as a national holiday.

    The Russell 2000 sank 3.7% and the Nasdaq 100 was dragged to its lowest close in a little more than two weeks. Travel and leisure stocks tumbled, while stay-at-home shares gained.

    Treasuries jumped on haven bids, sending the 10Y yield down the most since March 2020 on a closing basis, while traders pushed back bets on the Federal Reserve hiking rates.

    The World Health Organization and scientists in South Africa were said to be working “at lightning speed” to ascertain how quickly the B.1.1.529 variant can spread and whether it is resistant to vaccines. The new threat adds to the wall of worry investors are already contending with in the form of elevated inflation, monetary tightening, and slowing growth.

    Carnival Corporation and Royal Caribbean Cruises dropped more than 10% while United Airlines Holdings dropped 9.6%. Zoom Video Communications and Peloton Interactive gained at least 5%, while Moderna jumped more than 20% and Pfizer climbed to a record.

    The selloff comes after global markets adopted a Jekyll-and-Hyde posture for months, with equities rallying to newer records even as concerns intensified over a toxic combination of high inflation and slower growth. Investors poured almost USD900b into equity exchange-traded and long-only funds in 2021 – exceeding the combined total from the past 19 years.

    Traders pushed back the expected timing of a first 25 bps rate increase by the Federal Reserve to September from June, while briefly pricing out any more hikes unit 2023. The rally in Treasuries pushed the 10Y yield down 16 bps to close around 1.47%, its largest single-session decline since March 2020. – Bloomberg News.

    The S&P 500 fell 2.27% to 4,594.62 on Friday (26 November), the Dow Jones Industrial Average tumbled 2.53% to 34,899.34, and Nasdaq Composite Index declined 2.23% to 15,491.66.

     

    EUROPE

    The 13 omicron Covid cases identified in the Netherlands on Sunday (28 November) – along with additional ones confirmed in Germany and the UK – suggest the new variant already has a strong foothold in Europe.

    Vaccine makers are racing to evaluate the new strain to see if new formulations will be required. There are indications the symptoms associated with omicron are mild, top South African health officials said.

    Dutch authorities said they found the cases among 61 people who tested positive for Covid on two flights that arrived from southern Africa on Friday. 

    About 10% of the travellers on the flights from Cape Town and Johannesburg tested positive for Covid. Analysis of the remaining samples is continuing, said Dutch Health Minister Hugo de Jonge. The other travellers have dispersed around Europe and the world.

    The Dutch cases mark the most widespread incidence of the new strain in Europe found so far, but the variant has been confirmed or is suspected in at least seven other countries.

    Germany on Sunday confirmed cases among two people who arrived last week from southern Africa into Munich and one into Frankfurt. More suspected cases are being investigated

    Two cases confirmed by the UK on Saturday – plus another on Sunday – along with two in Denmark, all involved travellers from southern Africa. Austria, Belgium, and the Czech Republic have suspected or confirmed cases. Australia, Hong Kong, and Israel have identified cases, too. 

    The swift emergence of omicron threatens to hammer Europe as governments try to deal with a fourth wave of coronavirus cases driven by the infectious delta strain.

    Austria is in its fourth coronavirus lockdown, the Netherlands has imposed a series of tighter measures, and Germany’s health care system is straining. In many countries, vaccine coverage is far short of levels thought to confer herd immunity – even as a new strain emerges that may elude current shots.

    Governments have used the new variant to once again urge residents to get vaccinated – either with their initial shots or with boosters. The UK is leaning on a strong vaccination programme as its best defense, and will accelerate booster shots.

    Global markets were upended on Friday as the news of the latest mutation spurred investors to seek havens rather than bet on assets tied to economic growth. Markets in the Middle East followed when trading opened on Sunday.

    The European Union moved on Friday to shut down air traffic from southern Africa, and much of the world has followed. The cases so far have been in people who flew before the restrictions were made. – Bloomberg News.

    The Stoxx Europe 600 Index shed 3.67% to 464.05 on Friday.

     

    JAPAN

    Japan Prime Minister Fumio Kishida delivered his first extra budget, funding Japan’s biggest-ever fiscal package, as he tries to lay the groundwork for what he has billed as a new version of capitalism and secure an economic recovery before next year’s elections.

    Kishida’s cabinet approved new spending of JPY36t (USD316b) and the issuance of about JPY22t in new government bonds to pay for it, according to government documents released Friday that confirmed earlier reports.

    More than a trillion yen in cash handouts for households with children, along with several trillion more for restaurants and other businesses hit by the pandemic are among the measures.

    While Japan appears to have brought Covid under control for now, the stock market tumbled and the yen strengthened earlier Friday on concerns over new variants of the virus found in Hong Kong and South Africa, a reminder of the continued risks.

    Still, some analysts have questioned the need for so much spending now, given that Japan has been able to lift most restrictions on activity and the economy was forecast to rebound on its own.

    Japan’s new borrowing adds to the government’s growing mountain of debt and Finance Minister Shunichi Suzuki acknowledged it would put would be extra stress on the country’s fiscal health.

    Moody’s Investors Service Inc, earlier Friday (26 November), affirmed Japan’s A1 sovereign rating and said the outlook continued to be stable. The credit ratings firm said strong private sector savings and the fact that most of Japan’s bonds are owned domestically help make the situation sustainable.

    The Bank of Japan’s yield curve control programme, which involves purchasing government debt, is also helping keep the government’s interest payments down.

    Kishida, who had been known for being fiscally cautious, surprised investors last week by unveiling a record fiscal package of JPY56t, following a report days earlier that the economy shrank last quarter for the fifth time in eight quarters.

    But with vaccination rates now over 75% and restrictions on economic activity largely lifted, the recovery already looked poised to pick up.

    Even without the latest stimulus factored in, the International Monetary Fund calculates that Japan’s government debt will reach 257% the size of gross domestic product in 2021, the most among developed nations. – Bloomberg News.

    The Nikkei 225 Index fell 0.93% to 28,483.00 in early Monday morning, after tumbling 2.53% to 28,751.62 the previous session.

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