• European equities are trading markedly lower (Stoxx 600 -2.9%) with losses in the Stoxx 600 extending to 3.8% WTD; ES -1.9%, RTY -4.2%
• The new variant is said to be the most evolved strain so far, prompting fears that it could be worse than Delta
• USTs and Bunds are notably firmer and safe-havens (JPY, CHF) lead the way in the G10 FX space
• WTI crude futures declined 6% to breach the USD 73.00/bbl level to the downside
• Looking ahead, highlights include an early US market closure and BoE's Pill
• In lieu of today's market closures, the desk will operate a normal service on Friday 26th November until 18:45GMT/13:45EST, upon which the desk will close

MACRO PICTURE

In terms of the variant itself, early indications suggest the new variant has shown a high number of mutations and is said to be the most evolved strain so far. Further evidence on the COVID strain is still lacking given that it is in its infancy and therefore any further clarity on the spread of the variant and its potential to evade vaccines will be of great interest to the market and likely be the main driving force of price action today. WHO Health Organisation to convene an experts' meeting at 11:00GMT/06:00EST today to assess the new COVID-19 variant B.1.1.529; at this point in time, they do not comment on nations imposing travel restrictions on southern African areas.

The macro calendar is relatively light and there are early closures in the US on account of the Thanksgiving holiday which will naturally reduce liquidity in the market and therefore could exacerbate some of the moves throughout the session. Headlines are likely to centre on various nations preventing travel from South Africa whilst potentially imposing more stringent COVID measures domestically.

COVID jitters have hit risk sentiment in holiday-thinned liquidity. The new and more evolved South African variant prompted the UK, Singapore, and Israel to expand their travel red lists to include some African nations (Israel reported its first case of the new COVID-19 variant known as B.1.1.529). Japan also imposed tighter border restrictions. China’s Shanghai city see flights impacted by its own outbreak. Europe also tackles its surge in daily cases - German Green Party's Baerbock (incoming Foreign Minister) does not rule out a German lockdown, according to Spiegel. Germany's RKI President Wieler said the number of COVID patients in ICUs is rising rapidly, need a massive reduction in contacts between people now, adding that the country is greatly concerned by the B.1.1.529 COVID-19 variant. EU Commission President von der Leyen is also to propose activation of the emergency air brake, to halt travel from southern Africa due to the B.1.1.529 COVID-19 variant.

CLICK HERE FOR FULL ANALYSIS ON EARLY PRICE ACTION

EQUITIES

European equities are trading markedly lower (Stoxx 600 -2.9%) with losses in the Stoxx 600 extending to 3.8% WTD. Sentiment throughout the week has been hampered by various lockdown measures imposed across the region with the latest leg lower accelerated by new COVID variant concerns related to the B.1.1.529 variant in South Africa. The new variant has shown a high number of mutations and is said to be the most evolved strain so far. This has spurred fears it could be worse than Delta and has prompted multiple nations to halt flights from several African nations.The handover from the overnight session was an equally downbeat one with the Nikkei 225 (-2.5%) dealt a hammer blow by the risk environment and unfavourable currency flows. Stateside, futures are lower across the board with the RTY the clear laggard with losses of 4.2% compared to the ES -1.8%, whilst the tech-heavy NQ is faring better than peers but ultimately still lower on the session to the tune of 1.6%. Note, early closures in the US and subsequent liquidity conditions could exacerbate some of the moves throughout the session. With the macro calendar light, focus for the session is likely to centre on various nations preventing travel from South Africa whilst potentially imposing more stringent COVID measures domestically. Any further clarity on the spread of the variant and its potential to evade vaccines will be of great interest to the market and likely be the main driving force of price action today. Sectors in Europe are lower across the board with the Stoxx 600 Banking (-5.1%) sector bottom of the pile amid the declines seen in global bond yields as markets scale back expectations of central bank tightening (e.g. pricing now assigns a 63% chance of a 15bps hike by the BoE next month vs. 93% a week ago). Oil & Gas names (-4.8%) are suffering on account of the declines in the crude space with WTI crude in freefall with losses of 6.7% given the potential impact of travel restrictions on demand. Travel restrictions on South Africa (from UK, Israel, EU et al) and the potential for further announcements has crushed the Travel & Leisure sector (-5.7%) with airline names dealt a hammer blow; IAG (-13.5%), easyJet (-11%), Deutsche Lufthansa (-12%), Air France (-9.5%). Elsewhere, there are a whole raft of other laggards which are very much in-fitting with the March 2020 playbook but there are simply too many to list for the purpose of this report. Defensives and Tech are faring better than peers but ultimately still lower on the session to the tune of 1% and 1.9% respectively. Finally, for anyone wanting some positivity from today’s session, the potential for further lockdowns has proved to be beneficial for the likes of HelloFresh (+3.2%), Ocado (+2.1%) and Delivery Hero (+1.9%).

FX

DXY - The index has been under pressure in the risk-averse environment amid a slump in yields and gains in its basket components – namely the JPY, CHF, EUR (see below) – and with liquidity also thinned by Thanksgiving. From a technical perspective, the index has declined from its 96.787 overnight high, through the 96.500 mark, to a low of 96.332 – with the weekly trough at 96.035. Ahead, the US calendar is once again light, with the US also poised for an early Thanksgiving closure; thus, impulses will likely be derived from the macro environment.

JPY, CHF, EUR - Haven FX JPY and CHF are the clear outperformers as a function of risk-related inflows. USD/JPY has retreated from a 115.37 peak and fell through its 21 DMA (114.15) to a base around 113.66 - with the current weekly low around 113.64. USD/CHF retreated from 0.9360 to 0.9260 – with the 50 and 100 DMAs seen at 0.9234 and 0.9219, respectively, ahead of 0.9200. EUR/USD meanwhile gains on what is seemingly an unwind of the carry trade amid a spike in volatility. EUR/USD found support near 1.1200 before rebounding to a current 1.1288 peak.

AUD, NZD, CAD, GBP - The non-US Dollar risk currencies bear the brunt of the latest market downturn, with losses across industrial commodities not helping. The Loonie has taken the spot as the biggest G10 loser as hefty COVID-induced losses in the oil complex keep the currency suppressed. USD/CAD trades towards the top of a current 1.2647-2774 range. AUD is also weighed on by softer base metal prices – AUD/USD fell from a 0.7200 overnight high to a current low at 0.7110. On that note, Westpac sees AUD/USD pushed down to 0.7000 by Jun 2022 (prev. 0.7700) amid rate differentials with the US; Westpac made significant changes to its FOMC policy forecast and now expect consecutive increases in the fed funds rate in Jun, Sept, and Dec 2022. NZD/USD is slightly more cushioned amid smaller exposure to commodities, and as the AUD/NZD cross takes aim at 1.0450 to the downside. GBP, meanwhile, was initially among the losers amid its high-beta status but thereafter nursed losses in a move that coincided with EUR/GBP rejecting an upside breach of its 21 DMA at 0.8475.

EM - The ZAR is the standout laggard given the new South African COVID variant - B.1.1.529 COVID-19 variant (expected to be named Nu) – which is said to be the most evolved strain so far and thus prompted several countries to halt travel to the country of origin. USD/ZAR currently trades within a 15.9375-16.3630 intraday band. Meanwhile, the downturn oil sees USD/RUB north of 75.00 and closer to 76.00 from a 74.2690 base. The Lira also feels some contagion despite the lower oil prices (Turkey being a large net oil importer) – USD/TRY is back on a 12.00 handle and within 11.92-1226 parameters at the time of writing.

FIXED INCOME

Newsflow and indeed price action has been dominated by the COVID-19 situation following further details emerging around a southern African variant that has the potential to be more impactful than Delta was/is, full details available on the headline feed. As such, core debt is bid across the board. Stateside, USTs are posting gains in excess of a full point and are in proximity to the current high at 131.03; it is worth caveating that action, particularly for USTs, may be somewhat skewed today via the yield catchup from yesterday’s close and the broader Thanksgiving schedule impacting volumes. From a yield perspective, we are bull-steepening across the board with action, as has been the case recently, most pronounced in the short-medium components of the curve; nonetheless, IFR writes that the 10s/30s flattening bias remains intact. In Europe, the picture is very similar with both Bunds and Gilts also bid in excess of a full point at best, this comes after the UK benchmark gapped higher by circa 90-ticks at the open given the above leads. In light of the magnitude of the mornings moves, key resistance points are somewhat lacking but we are cognisant of the 172.27/47 chart resistance marks in the Bund. Given the magnitude of the mornings action, market pricing for Central Bank activity, particularly the BoE and Fed, has been pushed back notably, with a 15bp move for the BoE in December now only ascribed a 62% chance of occurring; however, as we know so little about this variant, such adjustments are more perhaps better described as ‘reactions’ than ‘updates to expectations, at this stage at least. Finally, for what it is worth, the schedule ahead does have a speech and text release due from BoE Chief Economist Pill on the Economic Outlook.

COMMODITIES

The crude complex has been hit by compounding COVID fears which in turn triggered various travel restrictions and subsequently took its toll on global crude demand prospects. The new and more evolved South African variant prompted the UK, Singapore, and Israel to expand their travel red lists to include some African nations (Israel reported its first case of the new COVID-19 variant known as B.1.1.529). Japan also imposed tighter border restrictions. China’s Shanghai city see flights impacted by its own outbreak. Europe also tackles its surge in daily cases - German Green Party's Baerbock (incoming Foreign Minister) does not rule out a German lockdown, according to Spiegel. EU Commission President von der Leyen is also to propose activation of the emergency air brake, to halt travel from southern Africa due to the B.1.1.529 COVID-19 variant. Losses in oil have exacerbated - with WTI Jan and Brent Feb now under USD 74/bbl (vs high 78.65/bbl) and USD 77/bbl (vs high 80.42/bbl), -6.0% and -5.0% respectively. This comes ahead of the OPEC+ confab next week, whereby OPEC watchers have suggested that oil prices will be a large contributor to the final decision. It is difficult to see how OPEC+ will increase output to the levels the US et al. will be content with, with the latest COVID downturn building the case for a pause in planned output hikes. Elsewhere, haven demand sees spot gold extend on gains above USD 1,800/oz after topping the 100 DMA (1,792.95/oz), 200 DMA (1,791.38/oz), 50 DMA (1,790.13/oz) overnight. Base metals are softer across the board amid the risk aversion. LME copper posts losses of around 3% at the time of writing, as prices threaten a more convincing downside breach of USD 9,500/t.

OTHER THINGS TO BE AWARE OF

As of 09:00GMT/04:00EST, Britain's Black Friday payment transaction volume was +21.4% YY and +5.4% vs 2019, Barclaycard; for reference, PWC forecasts that GBP 8.7bln will be spent on Black Friday vs GBP 7.8bln in 2019; predicting almost 60% of adults within the UK will purchase item(s), spending GBP 280/each on average. (Newswires/BBC)

Tesla (TSLA) has withdrawn request for state subsidies for planned eastern German battery factory but will stick to plans on building a factory, according to the German Economy Ministry. (Newswires)

RBNZ Assistant Governor Hawkesby said New Zealand's economy is quite resilient and reaffirmed the need to continue removing stimulus, while he sees risk inflation expectations could increase and noted that inflation expectations will be key for the RBNZ but added that the increase in inflation has so far been as expected. Furthermore, he stated that risks to the outlook are finely balanced and that COVID is a downside risk. (Newswires)

CBRT Governor Kavcioglu said the banking sector is very strong after a meeting with banking sector officials and that they informed the banking sector about rate cuts and other issues, while they held general evaluations on the economic development and the banking sector. Furthermore, he said that discussions were routine and nothing too different, as well as noted that it was not an extraordinary meeting and that the banking sector is able to overcome volatility in markets. (Newswires)

BoE Governor Bailey said supply problems causing inflation should be temporary, while he added the risk is that inflation expectations become embedded and that they have a very tight labour market in the UK. Furthermore, he stated that guidance is more hazardous to give in times of uncertainty and the impact of guidance varies according to where markets are. Bailey also commented that it concerns him a country would use Bitcoin as its nation currency and stated that crypto could be a financial stability issue if leverage gets into it, while he also noted that Turkey is a clear example where central bank independence is an issue. (Newswires)

China is said to have asked Didi (DIDI) to delist from US exchanges on security fears and proposals under consideration include privatization or a share float in Hong Kong followed by delisting from the US, while reports also noted that deliberations continue and it is possible that regulators could backtrack on their request. (Newswires)