In this November 26, 2021 market briefing, the speaker outlines how the emergence of the South African COVID‑19 variant B.1.1.529 is driving a sharp overnight sell‑off in U.S. equity futures and oil, while prompting a flight to safety into Treasuries, gold, and the yen. He provides technical analysis of the Dow futures, crude oil support levels ($73.14 and $70), and bond yields, linking the market reaction to lower trading volumes after Thanksgiving and heightened risk aversion. The commentary then shifts to the scientific profile of the variant—its numerous spike‑protein mutations, potential reduced vaccine efficacy, and a hypothesized origin in a chronic infection of an immunocompromised individual in a region with high HIV prevalence. He notes the WHO’s emergency meeting, the UK’s travel bans on six African countries, and the broader possibility of additional restrictions, emphasizing how such policy moves could further depress oil demand and economic activity. Concluding, he signals that future market direction will hinge on the extent of travel restrictions, inflationary pressures, and Fed policy expectations, and points listeners to his Twitter and the Market Maker podcast for deeper analysis.
Chapters
Okay, very good morning to you. It's Friday, 26th of November. I'm gonna get straight to it and talk about the new South African COVID-19 variant, and that's very much so what's moving the markets in the overnight session and weighing on sentiment this morning going into the European Open. Um, just running you through a couple of different charts to give you an update of where we are at the moment. This sell-off here you can see in the Dow future is from the commencement of the Asia-Pac session here in the ellipse at the top to where we're trading now as I'm filming going into the European open. So we've seen really a move of about 1,000 points in the Dow future already. A lot of this price movement, of course, exacerbated by generally lower volumes. Thanksgiving yesterday, market closures in the US, and shortened electronic sessions and, and pip sessions today. But typically speaking, US participants don't come back on the Friday. And so that does play a part as well. It kind of exacerbates price reactions, but certainly a very evident one that we're seeing develop on the back of this latest coronavirus developments. And you could pretty much mirror, or map I should say, overlay the oil price with the equity price. Obviously, a renewed fear about COVID-19 with a new variant yet to be determined on its transmissibility. But if that were the case, and obviously worst-case scenario that people fear is that it's mutated enough that it renders kind of current vaccine-led or it, or just natural antibody immunization redundant. And then obviously we go back to square one again, and that will impede a lot of travel, That's already started to happen. The UK has issued a temporary ban on flights from 6 African countries. Other countries are quite swiftly following suit as well at this point in time. And so oil is just feeling quite the brunt of selling at the moment. I mean, from a technical point of view, as we continue to move lower here in crude, $73.14 in the futures was an area of support and resistance going back through the September period. So there are some areas here that I'd be keeping an eye on. Any breakdown and through there, though, if this really starts to capitulate and become a bigger thing, then certainly move down to $70 technically is kind of next target beyond that point. It's kind of similar with the Dow actually. If we put the Dow just briefly onto a daily chart where the market has just found a bit of a bottom and seeing a bit of a bounce at the moment, if you put it on a daily, it kind of makes sense from a technical perspective. You can see here, this is looking at a multi-month picture. But you can see back to the early and mid-October price points here that the market just finding a bit of a floor there on that initial kind of spillover in price. Otherwise, yields declining. So T-notes getting a decent bid as well in this risk-off trade. Dollar-yen quite sharply lower. Yen strength on the classic kind of flight to quality move. Not forgetting as well is that the fixed income market is quite susceptible to a strong swing in price short term due to market positioning of being quite obsessed with inflation at the moment. And obviously that's led to an acceleration in, in the Fed talking about tapering, the market pricing in when the next Fed rate hikes are going to happen, all these types of things. And of course, now this comes out into a market that has been moving generally in the opposite direction in the rate space. So seeing a decent move there in T-notes and gold catching a strong bid as well this morning here in the top right, just in step then with the, as I said, the general flight to quality safe haven bid across markets. A little bit more then on what's been going on. So this new variant from South Africa is called the B.1.1.529. And scientists say that it carries a high number of mutations in its spike protein. Which plays a key role in the virus's entry into cells, into the body. And so just giving you a brief bit of background here, scientists pay the most attention to mutations in the gene that encodes the virus's spike protein, which plays that key role into entry into cells, and that's what's targeted by the vaccines that are currently in play. Uh, 4 variants of concern all carry multiple mutations affecting that spike protein, and that raises questions about whether people who've developed antibodies to the regular, or what they call the wild type strain of coronavirus, either from a vaccine or having recovered from COVID would be able to fight off then new variants that might emerge. In most instances, the variants of concern do lead to a reduction in vaccine effectiveness, but to quite a large varying degree, and it appears to be affected by waning protection over time. As we know, those efficacy rates require then booster shots as what we're seeing in the UK and other places, at least in the Western developed world, and also can be more prevalent among the elder generations, so 65 years old plus. In terms of where this has come from, like this exact one that we're talking about this morning that's really grabbing the attention, a scientist from UCL Genetics Institute in London this morning has said it's likely to have evolved during a chronic infection in an immunocompromised person, someone with already an underlying condition and possibly untreated HIV or AIDS. And the reason for that is that South Africa has 8.2 million people infected with HIV, which is the most in the world. And some speculate that that was the origin of the original South African beta variant as well, because of that immunocompromised individual. For those reasons, the spread— I mean, what's the current status? The current amount is there's almost 100 cases detected in South Africa. Um, what we've just had now come out from the World Health Organization, they're gonna have an emergency meeting. They're gonna convene with their experts at 11 o'clock London time this morning to assess the new COVID-19 variant. And at this point in time, they do not comment on nations imposing travel restrictions on South African areas. And so yeah, what we've seen here is the UK taking perhaps slightly more prompt action than they might have been criticized for doing so before. But this comes as well as why there's been the latest quite aggressive uptick we're seeing in mainland Europe. And all of these nations now being more educated, I guess, about having set protocols now how to deal with these things, taking much more abrasive action when this type of news tends to hit. So when the WHO meet, they'll decide if the variant should be designated as one of interest. One would think that a large portion of that has already been factored into market prices this morning, but certainly that kind of rubber stamps it, if you like, in that way. And then it will receive a name kind of like the others— Beta, Gamma, Alpha, so on and so forth. So yeah, What kind of things I'll be looking at from a market perspective, really, to ascertain direction from here is the degree of which now countries start to go into travel restrictions. That's obviously going to impede things like oil price, the perception as well about economic activity. This does obviously bring about long-term more concerns over the inflation and bottlenecks and things like that. But in the short term, I think it's more a reactionary effect. Certainly now this morning, the reasons why the market movement was quite violent is because of, even though, you know, you and I on these briefings have been talking about these case rates in a while, you throw in the hand grenade, which is now a different variant, which yet to be determined, but has the risk of mutation, which then can be very problematic. Requiring then more onerous restrictions put in place. And then that will sharply impede economic activity at a point in time where markets have really been pricing in Fed hikes, acceleration of taper, all these different types of things. So yeah, that, that is the latest. I mean, nothing else really for me to update you on. Really wanted to just cover that main story. And so yeah, that's the latest. I'll keep you updated and informed. Probably via my Twitter account throughout the rest of the day. But don't forget as well, I'll probably touch upon this a little bit more in the Market Maker podcast. I'll be talking to Piers later for our usual end-of-week chinwag where we'll talk about all things markets, and certainly this will be on the agenda. And so if you want a bit more of a deep dive into what our thoughts are on this matter, just search for Amplify Me Market Maker on Spotify, Apple, and so on. All right, take care, guys. Have a fantastic weekend.
