CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81.8% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Pepperstone logo
Pepperstone logo
USD

Covid on the rise? New virus fears smash sentiment

Chris Weston
Head of Research
Nov 26, 2021
12 hours ago few had heard of B.1.1.529 and now it seems many market players are becoming familiar, asking questions and getting few answers.

We know it was initially identified in Botswana, but cases have been seen in South Africa and even Hong Kong.

This variant wasn’t known about last week, but the reports are this strain is heavily mutated, with experts detailing these mutations are different from known variants. The case numbers are currently small, but the concern is two-fold.

  • Firstly, if it's radically different, will current vaccinations be as effective in neutralising antibodies? 
  • Secondly, how aggressive will the transmissions become and will certain governments have to impose restrictions, which will of course impact economics?

USDZAR trades at 12-month highs

We’ve just seen the UK government take an early stand by placing six African nations on its red list and when married with concerns of a fourth wave in SA, ZARJPY is -1.7% while USDZAR has smashed through the 16 handle and the highest levels since in over a year. Our SA40 index may find a wave of sellers upon re-opening.

I guess when various EU governments are already in the process of adding restrictions and some, like Germany, have been considering restrictions, so traders question if this will simply accelerate that process. Especially if this is indeed proves to spread rapidly, and with cases now in Hong Kong it increases the market's concern.

If we add in thin liquidity and the weekend gapping risk, it feels prudent as part of the risk assessment to de-risk portfolios into the weekend. News that Chinese regulators have requested Didi to delist from US bourses may have also added to the flow, and we see the HK50 -2%.

The JPN225 is -2.7% and seeing the big percentage move lower in Asia and in turn weighing most on S&P500 futures. A broadly stronger JPY is perhaps impacting equity sentiment, but Japan has also failed to offer freedoms like we’ve seen in Australia and other countries, despite really having incredibly low case numbers. The fear here is a new strain will just see case numbers rise again and the prospect of freedoms pushed further out.

Crude finding sellers easy to come by

Put SpotCrude and BrentCrude on the radar, as both are finding sellers easy to come by as a pure read on potential restrictions and the impact on demand – this is especially interesting ahead of this Thursday’s OPEC meeting – subsequently we ask, does the lower crude price incentisize OPEC to put its 400,000-barrel output increase on hold? I suspect it does.

Our GER40, EU50 and UK100 equity indices are seeing good sellers and the US2000 is down nearly 2% at this stage, as small caps are getting hit.

US Treasuries are finding good buyers, and the VIX should push above 20%. It feels like a genuine risk aversion move into the weekend and one where questions are being asked and few answers are found – often the sort of environment short sellers put in their best work.

Ready to trade?

It's quick and easy to get started. Apply in minutes with our simple application process.

The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients.

Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.