UK Stocks Tumble on New Covid-19 Strain News

What’s happening: British stocks fell sharply on Monday as the country announced stricter restrictions in order to contain the spread of the new strain of the coronavirus detected.

What happened: UK’s blue-chip stocks tumbled to around three-week lows in yesterday’s session with various countries announcing a ban on travel to and from Britain.

The new variant of the virus, which is suspected of being around 70% more transmissible than the original covid-19 virus strain, could also add more complications to the Brexit trade talks.

Why it matters: The UK was the first country to begin mass vaccination after approving the vaccine developed by Pfizer and its German partner BioNTech on December 8. Investors cheered the news against the backdrop of the rapid spread of infections and a high death toll of 3.3% in the UK.

The good news was tarnished, however, by reports of allergic reactions to the vaccine. To make matters worse, the UK detected a new strain of the covid-19 virus. British Health Secretary Matt Hancock said that the new virus variant is "out of control," which could lead to a spike in new cases in a country that was already witnessing record infections.

This led to increased restrictions in London and southeast England during the festive Christmas season. Various countries around the world announced restrictions on travel from the UK, with France, Italy, Germany, Canada, India, and Israel banning flights from the country.

This situation is likely to have an impact on the ongoing Brexit talks, with the UK and EU still in a deadlock over some key issues, including fisheries and fair competition, even as the December 31 deadline is fast approaching.

London’s FTSE 100 tumbled more than 2% at the start of the session, wiping out around £33 billion from the value of the index. The sell-off only deepened during the session, although the index recovered some losses after French transport minister announced plans to consider restarting goods trade with the UK.

The FTSE 100 settled lower by 1.73% on Monday, while the FTSE 250 fell 2%, with oil and airline stocks among the hardest hit due to the travel bans.

What to watch: Investors await a basket of economic reports from the UK, including current account, GDP growth rate, business investment and public sector net borrowing. The current account gap is expected to widen massively to £11.6 billion in the third quarter, from £2.8 billion in the second quarter. Britain's GDP is projected to contract by 9.6% in the third quarter.

Markets will also keep a close eye on the spread of the new virus variant in the country. Brexit talks will remain in focus, as the end of the transition period is fast approaching

Crude oil will be in focus today ahead of the API’s (American Petroleum Institute) report on crude inventories.

Context: Oil prices traded sharply lower on Monday as markets become overly concerned about the new strain of covid-19 detected in the UK and South Africa.

Details: Crude prices moved lower amid fears of the new virus variant being transmitted at a much faster pace than the original strain.

Various parts of Britain have been placed under tighter restrictions ahead of the holiday season, resulting in a closure of non-essential shops and restrictions on gatherings. Various countries also closed their borders for UK travellers.

Fears of the new strain resulting in new restrictions in various parts of the world dampened the bullish sentiment from the approval of covid-19 vaccines and US lawmakers agreeing to a $900 billion stimulus deal. The Dow Jones index declined by more than 400 points initially, although the index rebounded later and ended the trading session with gains. The performance of the Dow gave some confidence to energy investors, helping oil prices pare some losses.

WTI (West Texas Intermediate) crude for January delivery fell 2.8% to settle at $47.74 per barrel on Monday, after tumbling as low as $46.18 a barrel earlier in the session. Meanwhile, the February contract ended lower by 2.6% at $47.97, after touching an intraday low of $46.25 per barrel.

February Brent crude lost 2.6% to close at $50.91 a barrel on Monday, after gaining 1.5% during Friday’s session.

What to watch: Traders await API’s data on US crude stockpiles, after the increase of 1.97 million barrels in the week ending December 11, after a 1.14 million increase in the prior week.

The rising covid-19 numbers will also remain in focus, with total worldwide cases surpassing 77.3 million.

Other Markets: US trading indices closed mixed on Monday, with the S&P 500 and Nasdaq 100 down by 0.39% and 0.10%, respectively. The Dow Jones index bucked the trend and settled higher by 0.12%.

Brazil’s seasonally adjusted consumer confidence index, Canada’s average weekly earnings as well as the US GDP growth rate, corporate profits, Redbook index, existing home sales, Richmond Fed manufacturing index and CB consumer confidence.