Global Stocks Drop, Oil Tumbles on Fresh Covid-19 Travel Restrictions

 Global Stocks Drop, Oil Tumbles on Fresh Covid-19 Travel Restrictions

This post was originally published on this site

Global stocks dropped Monday as a fast-spreading strain of coronavirus emerging from England prompted fresh travel restrictions, dealing another blow to prospects for economic recovery.

U.S. share benchmarks opened lower as the S&P 500 fell 1.2%. The stocks gauge ended last week at its second-highest level on record. The Dow Jones Industrial Average lost about 285 points, or 0.9%, in early trading. The technology heavy Nasdaq Composite Index declined 1.2%.

Overseas, European shares tumbled after countries across the continent and beyond barred travelers from Britain in an effort to keep out a highly infectious variant of coronavirus that is spreading rapidly in England. The Stoxx Europe 600 slumped 2.8%.

“People are bracing themselves for a challenging start to 2021,” said Brian O’Reilly, head of market strategy for Mediolanum International Funds. Stocks could potentially pull back for the rest of the year in quiet holiday trading, and data such as restaurant bookings suggest economic activity is already slowing in the U.S., he added.

Oil prices also retreated amid expectations that fresh restrictions on European travel and transport will pinch fuel demand heading into 2021. Brent-crude futures, the benchmark in international energy markets, lost 3.9% to $50.23 a barrel.

The U.K. tightened restrictions on social and business activity over the weekend.

The U.K. tightened restrictions on social and business activity over the weekend.

Photo: Martyn Wheatley / Parsons Media/Zuma Press

In the U.K., where officials over the weekend tightened lockdown measures on London and the surrounding areas in an effort to contain the variant, the stocks-benchmark FTSE 100 slid 2.7%.

“There is obviously fear on the part of policy makers,” said

Paul Donovan,
chief economist at UBS Global Wealth Management. “The fact it spreads faster probably does extend more restrictions for a longer period. That in turn has economic consequences.”

Adding to investors’ concerns about British markets, negotiators missed a Sunday deadline for reaching a Brexit agreement, raising the prospect of a disruptive U.K. exit from the European Union at the end of the year. The value of the pound dropped 1.5% against the dollar, its biggest decline since April, to trade at $1.33.

The border closures threaten to add further strain to European economies already struggling under restrictions designed to quell winter Covid-19 outbreaks, investors said. The British government said the new strain appeared to be spreading 70% faster than earlier variants.

“It is going to make the short term much worse than it was already going to be,” said Nicholas Brooks, head of economic and investment research at Intermediate Capital Group.

France, Israel and Canada are some of the countries that have barred travelers from Britain in an effort to keep out a highly infectious new strain of the coronavirus that is spreading rapidly in England. Photo: Getty Images[object Object]

U.S. stock futures took a hit despite an agreement struck by lawmakers on a fiscal relief package that will ease pressure on the American economy through the winter. The roughly $900 billion aid package would support consumption in the coming months, investors said.

“It is more an antidepressant than a stimulant,” said Mr. Donovan. “The uncertainty here is to what extent are the $600 checks spent, and to what extent does an extra $300 a week unemployment benefit mitigate fear of unemployment for those who have jobs.”

Investors said the strain identified in the U.K., though concerning, shouldn’t stop the world economy from rebounding in 2021 provided vaccines are able to combat the mutant virus. The U.K. government’s chief scientific adviser said over the weekend there were theoretical reasons why the variant might alter the immune response, though there was no evidence so far that was the case.

“As long as the vaccines are rolled out on schedule then by the second quarter of next year we should see activity moving back to normality,” Mr. Brooks said. The new coronavirus strain and the border closings aren’t going to change the medium-term outlook, he said.

In a sign investors were reaching for assets they perceive to be safe, 10-year Treasury yields ticked down to 0.905%, from 0.947% Friday. Yields fall as bond prices rise.

The dollar rose against the euro and yen as well as the pound, pushing the WSJ Dollar Index up 0.8%.

Shares in oil producers including Occidental Petroleum came under pressure ahead of the opening bell in New York, alongside airline and cruise stocks.
Nike
shares jumped 6% after the sportswear giant Friday said digital revenue for its flagship brand rose 84% in the three months through November.

In Europe, British Airways-owner International Consolidated Airlines Group fell 9.1% and
Deutsche Lufthansa
lost 4.7%. London-listed shares in
Royal Dutch Shell
fell 6.1% after the oil major said it would write down the value of its assets by up to $4.5 billion.

Thin holiday trading may have added to the volatility in European markets. “I think basically everybody is closed for business for the rest of the year,” said

Gregory Perdon,
co-chief investment officer at U.K.-based
Arbuthnot Latham.

Asian markets were mixed by the close of trading. China’s Shanghai Composite Index ended the day 0.8% higher, while Hong Kong’s Hang Seng fell 0.7% and Japan’s Nikkei 225 ticked down 0.2%.

Write to Joe Wallace at Joe.Wallace@wsj.com