ASX dives 1.7% as Covid variant spooks markets

Investors wiped $41bn off Australian shares, the Aussie dollar hit a three-month low and bond yields dived amid renewed Covid fears.

A resurgance of Covid-19 fears hit the local sharemarket.

Investors wiped $41bn off Australian shares, the Aussie dollar hit a three-month low, industrial commodities buckled and bond yields dived as renewed Covid worries spooked global markets.

In its worst day in two months, Australia’s benchmark S&P/ASX 200 share index closed down 128 points, or 1.73 per cent, at 7279.3, the exchange rate hit US71.31c after falling 1 per cent in 24 hours, and the 10-year bond yield dived 9 basis points to 1.78 per cent amid reports that a worrisome new Covid-19 variant that emerged recently in Botswana had spread overseas.

It came after growing concern in global financial markets this week as daily Covid-19 case numbers hit records in several European countries and Austria imposed a full lockdown on its residents.

How travel stocks fell on Friday

Travel stocks were punished, with Flight Centre down 7.5 per cent, Qantas down 5.5 per cent and Webjet down 5.1 per cent after the UK suspended flights to South Africa and five neighbouring nations and the B. 1.1.529 variant was reported to have reached Hong Kong.

The energy sector fared worst, with Woodside Petroleum down 5.1 per cent, Oil Search down 5.5 per cent and Santos down 4.8 per cent as crude oil prices tanked.

West Texas Intermediate crude oil futures dropped 3.2 per cent to $US75.91 a barrel as the threat to energy demand from the new Covid variant added to demand jitters caused by soaring cases in Europe, at a time when the US and five other nations planned to release strategic petroleum reserves to cool surging crude oil prices which have exacerbated inflationary pressures.

Earlier this week, the US Centres for Disease Control and Prevention and the State Department warned US residents against travel to Germany and Denmark because of a Covid-19 case numbers.

Singapore iron ore futures fell 4.5 per cent to $US97.57 a tonne, sending Fortescue Metals down 3.9 per cent. BHP fell 1.5 per cent and Rio Tinto lost 2.3 per cent, with copper futures down 1.3 per cent.

Among the mega-caps, CSL fell 1.8 per cent, Macquarie Group lost 3.2 per cent and NAB fell 2.4 per cent.

Appen was weakest, down 19 per cent after Macquarie downgraded it to underperform.

A report from Bell Potter on Thursday said a large “transition portfolio” began to be executed on Thursday and that it would cause the sharemarket to come under selling pressure in the next two weeks. But the local bourse fared better than some other regional markets on Friday.

Elsewhere in the Asia-Pacific region, Hong Kong’s Hang Seng index fell 2.2 per cent and Japan’s Nikkei 225 lost 2.5 per cent, while China’s Shanghai Composite fell 0.5 per cent and South Korea’s KOSPI fell 1.5 per cent.

Trading volume was relatively light due to the fact that US markets were closed on Thursday for Thanksgiving, but the US 10-year Treasury bond yield dived 9 basis points to 1.54 per cent in Asia-Pacific trading, suggesting a rocky night ahead.

“The one bull in the China shop that could truly derail the global recovery has always been a new strain of Covid-19 that swept the world and caused the reimposition of mass social retractions,” said Jeffrey Halley, a senior market analyst Asia Pacific at OANDA.

“All we know so far is the B. 1.1.529 is heavily mutated but markets are taking no chances.”

S&P 500 futures dived 1.2 per cent, suggesting a rocky day after Thanksgiving for the US market.

CBA senior economist and currency strategist Kim Mundy said a “new malignant variant” of Covid-19 variant was a “major risk”, but it was worth keeping things in perspective.

“At this stage it is worth keeping two issues in mind,” she said.

“Many variants of Covid-19 are being found and similar comments were reported earlier in the year.”

Nevertheless, she expected investors to favour safe havens like the Japanese yen.

The US dollar fell 0.7 per cent to a four-day low of 114.45 yen after hitting an almost four-year high of 115.52 yen this week. Spot gold rose 0.8 per cent to $US1803.55 an ounce.

“The risk posed by new variants – as the new South African variant may demonstrate – suggests a strong case also to go very slowly and cautiously in reopening the international border,” said AMP’s head of investment strategy and chief economist, Shane Oliver.

Dr Oliver noted that the sharemarket remained vulnerable to short-term volatility with possible triggers being the rebound in coronavirus cases globally and new variants, the inflation scare, less dovish central banks, the US debt ceiling and the slowing Chinese economy.

But December was normally a stronger period for shares and the combination of solid global growth and earnings, vaccines allowing a more sustained reopening and still low interest rates augured well for shares over the next 12 months, albeit inflation and interest rate concerns would likely result in rougher and more constrained gains than what we’ve seen since March last year, he added.

The World Health Organisation will meet on Monday to discuss the new variant in more detail.