From Marc to Market:
Overview: Concerns that a new mutation of the Covid virus has shaken the capital markets. Equities are off hard, and bonds have rallied. In the foreign exchange market, the Japanese yen and Swiss franc have rallied. While there may be a safe haven bid, there also appears to be an unwinding of positions that require the buying back of the funding currencies, which is also lifting the euro. The currencies levered from growth, the dollar-bloc and Scandis are weaker. Oil has been knocked back by around 6.7%, with January WTI trading near $73.
Led by 2%+ losses in Japan, Hong Kong, and India, and 1%+ losses in South Korea, and Taiwan, the MSCI Asia Pacific Index has slumped to its lowest level since July. Europe's Stoxx 600 gapped lower and is off around 2.4% near midday. US futures are sharply lower (1.25%-2.5%). The US 10-year yield has dropped around 12 bp to nearly 1.50%. While UK Gilts have kept pace with US Treasuries, continental benchmark yields are off 6-8 bp. The US 2-year yield is about 15 bp lower (~0.49%), while European 2-year yields are mostly 2-5 bp lower. The 2-year Gilts yield has shed about 12 bp, as the market unwinds some of the chances of a rate hike next month.
Key Development: A new variant of the Covid virus was found. It is thought to have the most mutations to date. The EU, UK, Israel, and Singapore have quickly banned travel from South Africa and five neighboring countries. This is coming on top of and is separate from the outbreak in Europe, where Germany has reported a record number of new cases and several other countries have introduced new restrictions. Almost a third of Shanghai flights were canceled as three local cases were found. US infections are also on the rise.
Asia Pacific
As widely expected, South Korea hiked its key 7-day repo rate by 25 bp to 1.0% yesterday. It follows a 25 bp hike in August. Consumer inflation rose 3.2% year-over-year in October, while the core rate rose 2.8%. Growth in Q3 was 4.0%. With today's roughly 0.3% decline, it brings this year's loss to almost 9%. Only the yen (~-9.4%) and the Thai baht (~-11%) have performed worse in the region.
Australia reported stronger than expected October retail sales. The 4.9% month-over-month surge was more than twice the Bloomberg median forecast (2.2%) and follows September's 1.3% gain. It underscores the recovery that is taking place. The preliminary PMI showed the recovery continuing into November. The composite rose to 55.0, its highest reading since June....
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