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Updated: UK and European stock markets have dropped more than 3% on fears of a new highly transmissible coronavirus variant spreading from South Africa.
Following heavy selling in Asia, where the benchmark MSCI index tumbled 2%, the FTSE 100 plunged 3.3% or 240 points to 7,070 at the open, wiping out four days of gains. By 9am, it had settled back to 7,100, a fall of 2.9%.
Scientists consider the new B.1.1.529 variant to be the most significant one found yet and are urgently investigating whether existing vaccines are effective against it.
Travel and tourism stocks fell in response to the UK imposing a temporary ban on flights from South Africa and neighbouring countries Namibia, Botswana, Zimbabwe, Lesotho and Eswatini.
BA owner International Consolidated Airline Group (IAG) dived 10.5% and plane engine maker Rolls-Royce (RR) dropped 10% as the FTSE looked set for its worst day in over a year.
Whitbread (WTB) and Intercontinental Hotels (IHG) sank over 5% and 6%, followed by oil giants Royal Dutch Shell (RDSb) and BP (BP) suffering similar declines as crude oil crashed. Financials NatWest (NWG), Lloyds (LLOY) and Prudential (PRU) slid between 4% and 5%.
In Europe – where coronavirus cases were already surging before the discovery of the new variant – French and German stock markets matched the FTSE’s fall. Trading in futures points to a 1% fall in the US later when markets reopen after the Thanksgiving holiday.
Government bond yields fell as investors sought safe havens. The pound shed 0.2% to $1.3295 against the dollar. Gold rose 1% to $1,806 an ounce. Brent crude oil slumped 4.8% to $78.28 a barrel, with Nymex Light Sweet down 5.8% at $73.79.
ThinkMarkets analyst Fawad Razaqzada said: ‘It is certainly feeling like a Black Friday already.’
‘Fears that more countries will introduce fresh lockdowns and travel restrictions has hurt crude oil, sending it down over $5 lower,’ he said.
‘The implications for what had been a faltering and unestablished economic recovery has come at a time when some investors were beginning to question where the next leg of growth was coming from,’ commented Richard Hunter of Interactive Investors.
Trading screens were not entirely red, however. More domestically focused UK mid-cap and smaller-company stocks made gains with the FTSE 250 index rising 0.5% and the FTSE Small Cap 0.4% higher.
A handful of FTSE blue chips eked out gains, with online grocer and lockdown winner Ocado (OCDO) 2.7% up, cybersecurity provider Darktrace (DARK) 1.7% firmer and Royal Mail (RMG) advancing 1.4%.
With the World Health Organisation meeting today to determine the seriousness of the new strain and its multiple mutations, Nigel Green of de Vere financial advisers predicted markets would resume worrying about inflation and supply risks after a ‘wobble’ over the new variant.
‘This is because, as Delta showed, mutations are now expected and we have more of a blueprint about how to deal with them,’ he said.
Neil Wilson at Markets.com agreed: ‘This could be a buying opportunity for some beaten-down names.’
‘Make of this what you will – but should IAG and Tui (TUI) really be down year-to-date? Looks like an overreaction so far,’ he added.
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