Risk Off as Mutant, More Infectious Covid-19 Strain Emerges in U.K.

December 21, 2020

An out-of-control strain of Covid in Great Britain has elicited new travel restriction by many continental European governments, a big sell-off in European stocks and U.S. stock futures, lower sovereign debt yields, a drop in oil prices exceeding 3.0%, and an intra-day 1.4% rebound in the trade-weighted dollar. 

The other pieces of adverse Covid news over the weekend are that 1) vaccine distribution has proven less efficient than vaccine development; 2) continuing high rates of new infections, hospitalizations, and deaths around the world; and 3) more elevated U.S. shares of the incremental growth in cases and deaths, respectively 37.7% and 22.9% of the global totals over the past 72 hours.

Covid concerns overshadowed news that Congressional Democrats and Republicans reached agreement on a $900 billion Covid disaster relief package that excludes any federal aid to state and local governments hit hard by the pandemic and blanket liability protections for businesses against workers stricken by the illness while on the job.

In contrast to the U.S. fiscal deal, the other big set of negotiations, that being between the British government and the European Union on a post-Brexit trade arrangement, remains elusive. The year-end deadline is fast approaching, and there’s still not movement to at least extend the current transition past that date.

In other geopolitical news, the incoming Biden administration is reportedly considering a stiff and wide-ranging set of reprisals against Russia for its latest cyber crime.

Compared to closing levels last Friday, the dollar has climbed 1.6% against sterling, 2.6% vis-a-a-vis the Russian ruble, 2.4% versus the Mexican peso, 1.4% and 1.3% versus the New Zealand and Australian dollars, 0.8% relative to the loonie, 0.6% against the euro, 0.4% versus the Swiss franc, and 0.3% against the Japanese yen and Chinese yuan.

Stock markets in Europe have tanked today by 3.2% in Spain, 2.9% in Germany, 2.7% in France, 2.6% in Italy, and 2.3% in Great Britain. In U.S. futures trading, the S&P (-1.8%) has reacted more negatively than the DOW (-1.5%) or Nasdaq (-1.1%). Share prices in Asia lost 3.0% in India, 1.0% in Taiwan and Indonesia, 0.7% in Hong Kong and New Zealand but just 0.2% in Japan. China’s Shanghai Composite index actually rose 0.8%.

West Texas Intermediate crude oil fell back 3.6%, and the price of gold dipped 0.3%.

Ten-year British gilt, U.S. Treasury, and German bund yields are down 7, 4, and 3 basis points.

Consumer confidence in December rose six index points to a 9-month high of -20 in the Netherlands and by 3.8 points to a 5-month high of -3.8 in Denmark, but matched November’s 3-month low in Turkey.

A 3.1% monthly drop in Danish retail sales last month more than halved the year-on-year advance to 6.2%. Polish retail sales in November were 5.3% fewer than their year-earlier level. Dutch household spending in October recorded their biggest year-on-year drop (6.5%) in four months.

Mexican retail sales fell 1.4% between September and October, but their 12-month 7.1% rate of decline matched a 6-month low in September.

Hong Kong CPI inflation (-0.2%) was negative for a fifth straight month in November. Export orders in Taiwan leaped nearly 30% in November to an all-time  peak.

Producer prices in Iceland and Portugal in November were respectively 0.2% higher and 4.7% lower than a year earlier.

Policymakers at the People’s Bank of China left the 1-year and 5-year loan prime rates unchanged at 3.85% and 4.65%. The only two changes in 2020 occurred in February and April, totaling 30 basis points in the case of the one-year rate and 15 bps in the 5-year rate.

The Chicago Fed National Activity Index in November relinquished all of October’s improvement and then some, falling to its weakest reading since April.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

 

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