News of a potentially fast-spreading new coronavirus variant has already triggered a violent reaction on markets and in a number of different asset classes.
While much attention has naturally alighted on equity markets, with big falls in the FTSE-100 and continental European indices such as the DAX in Germany and the CAC-40 in France, probably the most significant move has been in the oil price.
At one point this morning, the price of a barrel of Brent crude fell to $77.28 – a level it has not seen since 24 September.
And, while a new coronavirus variant is undoubtedly unwelcome news, the fall in the price of oil may be one piece of good news emerging from the situation.
For a start, because oil prices move in close correlation to the price of other energy sources such as natural gas, a big decline will relieve inflationary pressures.
These, as was shown by this week’s co-ordinated release of crude reserves by the US, China and others, have been exercising governments in a number of countries.
It has also been exercising policy makers. The Bank of England has been dropping ever heavier hints of a looming increase in interest rates and, while it surprised the markets by not raising its main policy rate this month, at least one rise was being priced by the end of February next year.
But a sustained decline in the price of oil – and the threat to growth posed by the new variant – will relieve pressure on the Bank of England to act quickly and especially at a time when a number of members of the Bank’s Monetary Policy Committee are still extremely wary of the possible impact of even a modest increase in Bank Rate.
That is also the calculation markets have been making this morning about the US. Yields on US Treasuries (US government IOUs) have fallen this morning – the yield falls as the price rises – as investors started to reconsider the likely timing of the next rise in US interest rates.
The odds against an early rate hike from the US Federal Reserve had been shortening since, on Monday, President Joe Biden reappointed Jay Powell as chairman of the Fed rather than going for the more dovish Lael Brainard.
Those bets have now started to unwind as some investors calculate the spread of a new coronavirus variant could push back the timing of the Fed’s first hike.
A bigger concern, when it comes to the potential impact of another COVID variant, will be Europe. The main European economies have not rebounded from the pandemic as rapidly as the United States, as borne out on Thursday by confirmation of weaker-than-expected GDP growth in the third quarter of this year in Germany, the continent’s biggest economy.
Those concerns also apply to the UK, whose economy is further away from recapturing its pre-pandemic levels than any other country in the G7, other than Japan.
What is particularly striking about market reaction to this new variant is that it has been far more violent than the response, earlier this week, to new COVID lockdowns in Austria, Slovakia and other parts of continental Europe. On that occasion, investors calculated that spending prevented from taking place due to lockdowns would be merely deferred, not postponed altogether.
With the new variant, as so little information is currently available about the speed with which it can be transmitted and the impact it will have on sufferers, the same assumption cannot be made.
That explains the punishment meted out this morning to aviation stocks, such as International Airlines Group (IAG) and Lufthansa and tourism-related stocks, such as TUI, Intercontinental Hotels and Whitbread, the owner of the Premier Inn chain.
But it cannot be stressed how unknowable the situation is.
As Neil Shearing, group chief economist at the consultancy Capital Economics, put it in a note to clients this morning: “It goes without saying that it’s still too early to say exactly how big a threat the new B.1.1.529 strain poses to the global economy.”
Mr Shearing said there were three key points to make, though, the first of which is that – as Delta showed – it is very hard to stop the spread of virulent new variants. Secondly, it is the restrictions imposed in response to the virus, rather than the virus itself, that causes the bulk of the economic damage.
Thirdly, he said, the global economic backdrop is different than in previous waves, with supply chains already stretched, while labour shortages are widespread.
He added: “All of this will complicate the policy response. At the margin, the threat of a new, more serious, variant of the virus may be a reason for central banks to postpone plans to raise interest rates until the picture becomes clearer.
“The key dates are 15 December, when the Fed meets, and 16 December, when several central banks, including the Bank of England and European Central Bank, meet.
“But unless a new wave causes widespread and significant damage to economic activity, it may not prevent some central banks from lifting interest rates next year.”
Much will depend on what information comes from the World Health Organisation in coming days and how governments respond.
As Jim Reid, head of global fundamental credit strategy at Deutsche Bank, noted today: “At this stage very little is known. Mutations are often less severe so we shouldn’t jump to conclusions but there is clearly a lot of concern about this one.
Also South Africa is one of the world leaders in sequencing so we are more likely to see this sort of news originate from there than many countries.
“Suffice to say at this stage no one in markets will have any idea which way this will go.”
Exactly. At the moment, travel bans have only been imposed to and from six southern African countries. It may well be that, if the new variant has already taken hold elsewhere, there may be little point in imposing new travel restrictions.
But this is not a situation many investors either expected or wanted to return to. They have seen this story before. And they do not wish to be caught out in the way they were during earlier waves of the pandemic.
Joules secures Next rescue with majority of stores and jobs saved
Collapsed fashion retailer Joules will live on after Next agreed a rescue deal that preserves most of its stores and jobs.
Under the deal Next will pick up 100 of its 132 stores and only 133 of 1,600 staff will lose their jobs.
TFG, the owner of the Hobbs, Whistles and Phase Eight womenswear brands, appeared to be the frontrunner on Wednesday in an auction process to secure an agreement with Joules’ administrator, Interpath Advisory.
Joules is the second major UK acquisition for the fashion-to-homewares retailer in as many months.
Next snapped up the brand, website and intellectual property of Made.com on 9 November.
Joules had been trading as normal since a failure to secure new investment pushed it towards insolvency a fortnight ago.
The clothing, footwear and accessories retailer collapsed after its finances, profitability and cash generation came under pressure amid the cost of living crisis.
It had been in talks with both Next and TFG about new investment beforehand.
Unions could coordinate strike action across NHS for ‘maximum impact’, GMB boss says
Union leaders could coordinate industrial action across the NHS this winter to cause “maximum impact”, the head of the GMB has suggested.
Andy Prendergast, the GMB national secretary, said health workers have had enough of “public school boys who run the government and simply don’t care” about their pay demands.
More than 10,000 ambulance workers from the GMB voted to strike yesterday, following in the footsteps of nurses in opting to walk out.
Asked if there will be a “coordinated strike” in the health service, Mr Prendergast told Sky News: “We will be talking to the other unions.
“We know that the nurses have got their first ballot in over 100 years. We know that our colleagues in Unite, in Unison are currently delivering ballots.
“So we’ll be looking to make sure this has the maximum impact.”
It was put to Mr Prendergast that the safety of patients could not be guaranteed if there is coordinated strike action between unions and the NHS.
He argued their safety is not being guaranteed now due to the staffing crisis, with poor pay driving many out of the profession.
“One third of our members in the ambulance service believe that they have been involved in a delay that has led to a patient dying, so this isn’t a situation where this is a service that runs perfectly well,” he said.
NHS ‘dying on its feet’
“This is a service that’s dying on its feet and our members are actually standing up and the public of Britain should support them. This is a matter of a life or death situation.”
Mr Prendergast said NHS workers “work extremely hard, often for wages that a lot of people wouldn’t get out of bed for”.
He added: “Ultimately they are saying enough is enough. It’s time for them to take action. This is the one thing that they can do to try and improve patient safety, to try and improve the terms conditions, to try and deal with 135,000 vacancies that we have among a service that we rely on.”
Paramedics, emergency care assistants, call handlers and other staff are set to walk out in nine trusts:
- South West Ambulance Service
- South East Coast Ambulance Service
- North West Ambulance Service
- South Central Ambulance Service
- North East Ambulance Service
- East Midlands Ambulance Service
- West Midlands Ambulance Service
- Welsh Ambulance Service
- Yorkshire Ambulance Service
The industrial action is due to take place before Christmas, with the union planning to meet reps in the coming days to discuss dates.
Thousands of ambulance workers in Unison, the UK’s biggest trade union, also intend to take industrial action before Christmas.
Up to 100,000 nurses from the Royal College of Nursing are also set to stage a mass walkout in December, one of the busiest months for the NHS.
The army has been placed on stand by in case it is needed to fill roles of NHS workers on strike days.
Coordinated strike ‘can speed up negotiations’
Dr Emma Runswick of the British Medical Association told Sky News that coordination between unions will help protect patients as they can discuss between themselves how to cover urgent and emergency care.
She added that an effective coordinated strike “will help to speed up negotiations”.
“We want there to be an impact on the employers and on the government to bring them to the table to negotiate with us. And if we coordinate and if we’re effective, the government and employers will negotiate faster. And that’s better for us and better for patients in the long term.”
The UK is facing a wave of strikes this winter as workers from different industries are set to walk out over pay and conditions
Rail workers, civil servants, firefighters and teachers are among the tens of thousands expected to take industrial action as a recession grips the UK and the cost of living rises.
Wage price spiral ‘nonsense’
Ministers have been criticised for refusing to negotiate with unions, with Business Secretary Grant Shapps saying meeting their pay demands would lead to a wage inflation “spiral”.
Eddie Dempsey, assistant general secretary of the RMT, which covers the transport sector, rubbished that argument.
“This idea that there’s going to be a wage spiral is nonsense because wages have been falling as a share of wealth in this country – what goes to wages and what goes to profits,” he said.
Mr Dempsey said that now, wages only account for around 8% to 12% of unit costs.
He pointed to a study from the Bank of England which found there was no risk of wage-induced inflation across Western economies because people have got less money.
He claimed what the government is actually worried about “is a shift in class power”.
“They’re worried about trade unions and ordinary working people having the ability to bargain for better wages. That’s what they’re worried about.”
Rail union ‘hopeful’ of deal to end strikes
Mr Dempsey said his union has been in negotiations for longer than six months and “every time we feel like we are making headway it has felt like the rug has been pulled out from under our feet”.
However he said there is “definitely a change of tone” with the new Transport Secretary Mark Harper and the RMT is “hopeful” a deal can be reached.
Royal Mail workers are also locked in a bitter dispute over pay and conditions, with the CEO Simon Thompson accusing union leaders of “trying to destroy Christmas” by walking out.
He claimed striking workers had demonstrated “extraordinary behaviours” and that he has heard allegations of racism, sexism and violence.
Royal Mail CEO accused of ‘lying’
Speaking during Sky’s Q&A with union leaders, Dave Ward of the Communication Workers Union (CWU) accused Mr Thompson of “lying”.
He said the union “welcomes an independent look at behaviours” of his members but the CEO’s behaviour should also be investigated.
“He goes on (social media) every single day, including weekends. and he goads our members,” Mr Ward said.
“He’s brought in a team of union and worker busters and they’re deliberately creating a psychological attack on every single worker.
“Go out and ask postal workers how they feel about this particular CEO.”
Buyers struggling to afford homes after mini-budget despite house prices falling
Buyers are increasingly struggling to afford homes despite prices falling faster, according to a closely watched report.
Average prices fell by 1.4% last month, up from a 0.9% drop the month before, Nationwide Building Society found.
The mortgage lender said it was the biggest monthly drop since June 2020.
It took the annual pace of price growth to 4.4% from 7.2% and the average cost of a home to £263,788.
The findings build on wider evidence of a marked slowdown, partly linked to rising flexible mortgage rates after successive rises to Bank rate by the Bank of England since December last year to tackle soaring inflation.
Nationwide said it was clear that wider mortgage conditions were yet to recover from the financial market meltdown that followed the Truss government’s mini-budget growth plan in September, which hammered confidence in the UK’s public finances.
Lenders withdrew offers and temporarily halted deals as the value of the pound hit a record low and borrowing costs surged.
Fixed term rates have taken time to ease back towards pre-growth plan levels, damaging affordability.
It has been exacerbated by the wider cost of living crisis, with pay growth lagging far behind the pace of price increases in the economy.
Property website Zoopla reported this week that homes had been typically selling for 3% below their asking price in recent weeks and warned that figure was likely to deteriorate further next year.
Robert Gardner, Nationwide’s chief economist, said: “While financial market conditions have stabilised, interest rates for new mortgages remain elevated and the market has lost a significant degree of momentum.”
He added: “Housing affordability for potential buyers and home movers has become much more stretched at a time when household finances are already under pressure from high inflation.
“The market looks set to remain subdued in the coming quarters. Inflation is set to remain high for some time and Bank rate is likely to rise further as the Bank of England seeks to ensure demand in the economy slows to relieve domestic price pressures.”
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