Today’s Trading Playbook
KEY THEMES
In their last trading session last week, global equities tumbled on a notably tough Friday. Declines came apparent across the regions, with the U.S., European, and Asian shares falling under pressure. Furthermore, oil prices retreated below the USD80/bbl level, with Brent oil prices closing the week near USD73/bbl (-11.6%). The downward movement across the aforementioned asset classes came in light of World Health Organization’s (WHO) designation of a new COVID-19 variant detected in South Africa with a large number of mutations as being "a variant of concern". We note that this is the fifth variant to be designated as such. The risk-off mode towards risk assets was further coupled with a flight to safety, as the yield on U.S. 10-year Treasury went down below 1.5%, with subsequent gains on gold and Japanese yen.
Here at home, pressures on the short-term are to be expected. However, the very lack of information regarding the new variant, as well as the short window which global markets had to react within, make it a difficult job predicting to what extent short-term pressures will prevail. We think global markets are just thirsty for knowledge at this stage, as confusion coupled with elevated asset prices did fuel jittery responses. Understanding the intensity of the new variant, as well as its spreading speed, will help gradually restore confidence in risk assets once more. It’s very important to watch for the global inflation narrative going through the new variant story. We think that if the situation develops to a partial economic shutdown across certain regions, supply chain disruptions will be more vicious, meaning global commodity prices rally will persist. However, if the situation develops to a full lockdown all over the globe, then many commodity prices will likely face a consequential setback.
Now, on to the top news and analysis for the day.