Risk sentiment has been hit hard by the new and more evolved Covid-19 variant first detected out of South Africa. Asian and European markets are firmly in the red with hospitality and travel stocks taking the brunt of the losses. Safe haven currencies are in demand with the yen, swissie and USD being bought. Investors are shooting first and looking for answers later with this worrying news.

Early indications suggest the new variant has shown a high number of mutations and this has the potential to make the current vaccines less effective. Further evidence on the Covid strain is still lacking given that it is still in its infancy. Any new clarity on the spread of the variant and its potential to evade vaccines will be a key driver of markets today. The WHO is set to meet later this morning to discuss the new variant and many countries will be guided by their advice.

US stocks market reopen, risk assets all red

There are early closes in the US later today due to the Thanksgiving holiday. This will naturally reduce liquidity in the market and could exacerbate some of the price action throughout the trading day. Stock futures are showing steep losses at present, following European bourses which are down over 3%.

More risky currencies like AUD and NZD are being sold while the South African rand posted new year-to-date lows.

JPY and CHF outperforming

In the current “risk-off” environment, investors are seeking safe havens like government bonds. This means yields are turning lower with the widely watched 10-year US treasury yields now dropping below the 50-day simple moving average and closing in on the psychological 1.50% level.

The Japanese yen and Swiss franc are the go-to safe haven currencies, along the US dollar. This contrasts with the heavy losses in AUD and NZD which are close to posting new year-to-date lows.

A classic risk gauge in the FX space is AUD/JPY which has fallen over 2% this morning. The pair had been trading around the 50-day and 200-day simple moving averages near 83 over the last few sessions. But today’s collapse has taken prices sharply down through those moving averages, as well as the 100-day indicator.

Oil plunges as pandemic fears grow

After the reserve release by major oil consuming countries underwhelmed, oil markets are down over 5% today. While there has been lots of talk of more supply coming into the market, the bullish noise mostly hinged around demand conditions improving amid a global reopening.

The new Covid variant threatens to close borders and dampen global travel. (See IAG, the international airlines group which is down over 12% at the time of writing.) Brent crude is nearing its 100-day moving average with the 50% retracement level at $75.72.

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