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Research Market strategy
by Swissquote Analysts
Daily Market Brief

Global Equities Tumble on New COVID Strain


Global Equities Tumble on New COVID Strain

By Strategy Desk

The US stock market was mostly bearish on Monday, but it maintained to bounce back from session lows. Bears were concerned about the new strain of the coronavirus detected in the UK, while bulls were pointing to the stimulus package finally approved by Congress. Nasdaq (-0.10%) and the S&P 500 (-0.39%) closed in the red, while the Dow managed to add 0.12%, driven by financials.

On Sunday, members of Congress agreed on the next relief package after months of debate. The stimulus package is worth $900 billion and has been approved by the Senate a few hours ago. It includes direct payments for the unemployed, as well as support for airlines, small businesses, and vaccine distribution. Democrats are still not satisfied with the small size of the package, as they previously backed a $2.4 trillion bill.

The optimism surrounding the second stimulus round has been offset by the news that the new COVID strain found in the UK is about 70% more infectious than the existing coronavirus.

Financials and tech were the only sectors out of 11 tracked in the S&P 500 to see percentage gains. On Friday, the Fed published a report discussing its stress test results and said that it had eased restrictions on buybacks and dividends, which boosted the banking sector. The S&P 500’s banking sector index added about 3%. Goldman Sachs surged over 7%, and JPMorgan added almost 6%.

Lockheed Martin Corp fell over 1% after announcing it would acquire rocket engine maker Aerojet Rocketdyne Holdings for $4.4 billion.

In Asia, stocks are tumbling on Tuesday, as the new COVID strain is expected to trigger more lockdowns worldwide.

At the time of writing, China’s Shanghai Composite is down 1.36%, and the Shenzhen Component has lost 0.45%. The US Commerce Department added more than 100 Chinese and Russian companies to an updated list of companies that it alleges have connections to their nations’ militaries.

Hong Kong’s Hang Seng Index has dropped by 1.03%.

Japan’s Nikkei 225 fell 1.14%, while South Korea’s KOSPI is down 1.49%.

In Australia, the ASX 200 closed 1.0% lower.

The worries about the new strain of COVID, called B.1.1.7, pushed European stocks to their lowest since October. The new strain was detected in the UK, forcing the government led by PM Boris Johnson to impose a full lockdown in London and southeastern England. The UK has become isolated as many countries closed their borders.

The good news is that the new strain seems to be sensitive to the existing COVID vaccines. On a side note, the European Medicines Agency has just granted approval for the use of COVID vaccine produced by Pfizer and BioNTech. Germany, France, Italy, and other European countries would kick off their vaccination programmes on Sunday.

Fiat Chrysler and French carmaker PSA obtained EU antitrust approval yesterday for their $38 billion merger deal. The new company will become the fourth-largest automaker in the world. The new entity, called Stellantis, will own brands like Fiat, Dodge, Opel, Peugeot, Jeep, Ram, and Maserati.

In the commodity market, oil prices continue to tumble on worries that the new COVID strain would trigger new lockdowns and thus hit demand for crude even harder. Both WTI and Brent brands are down over 2.10%, after gaining about 40% in the last two months to hit the highest in nine months.

Gold reacted positively on the recently approved stimulus package in the US, but the metal is retreating as investors are more focused on the USD rebound. Gold futures are down 0.08% to $1,881, after breaking above $1,900 for the first time since the beginning of November.

In FX, the US dollar is recovering as investors are looking for safe-havens. The USD Index is up 0.26% to 90.188. EUR/USD is down 0.16% to 1.2222.

The pound is declining against both majors as London just introduced a total lockdown. On the Brexit front, some hopes showed up after Johnson hinted that he was ready to step back on fisheries and revealed a new proposal on fishing rights.

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