New ‘horrific’ Covid variant sends chills through markets

Investors are spooked by the discovery of a new Covid-19 variant (B.1.1.529) that could resist current vaccines. From noon today until at least 4 am on Sunday, the UK has banned all flights from South Africa, Namibia, Lesotho, Botswana, Eswatini, and Zimbabwe. Presumably, the authorities will better understand the new strain by then before making further policy announcements. We have to assume other nations will follow this kind of protective policy.

When events like this hit the newswires, investors look madder than a handbag full of weasels. Hence the US Dollar, Japanese Yen and, to a lesser extent, the Euro, have all gained strength overnight, driven by knee-jerk safe-haven buying.

4.9% rise in Aussie retail sales fails to support AUD

The losers in this ‘flight to safety are the usual suspects. The Australian and New Zealand Dollars both lost ground overnight and the South African Rand was battered even worse. Not even a stellar 4.9% rise in Australian retail sales in October (double the market forecast) could support the AUD. Hence GBPAUD is up more than 1% overnight at AUD 1.8660 in early UK trade. That may well continue into the early session. We did say that when it broke out of its range, it would fly.

The GBPNZD rate has been rising all week but is equally elevated at NZD 1.9530 this morning, having been a tad higher overnight. This pair hasn’t been so high since mid-October.

UK closes borders to African countries

The cessation of flights from South Africa to the UK and probably to other countries has hit the South African Rand hard. The GBPZAR rate is up to R21.63 this morning; having been down at R21.07 at noon yesterday. That circa 3.0% rise may be just the start of the upswing if the news about the new strain proves worse than expected and one specialist calls the new variant, ‘horrific’.

As for the majors, well the US Dollar is always the go-to currency for scared investors. So it is no surprise that GBPUSD is down just below $1.33 this morning; a level we haven’t seen since December last year. Meanwhile, there is some support for the Euro and we can see that in the EURUSD rate which has bounced by half a cent since Tuesday to this morning’s $1.1235.

The Yen buyers are out in force and GBPJPY is down to ¥151.75 this morning having tested ¥1.54 yesterday lunchtime.

The covid story will dominate the day ahead because we have very little hard data to challenge it. We will get a couple of speeches from ECB members but that is about your lot.

You will be delighted to hear though that the supply chain issues (IT issues I think) that caused a lack of potato crisps in Britain’s shops is resolved. And just in time, it is National Flossing Day. Have fun.

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