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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.

BOTSWANA VARIANT SPOOKS MARKETS
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News of a fresh coronavirus variant has triggered a violent reaction on markets, including the FTSE 100

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.

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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.

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Bank of England governor Andrew Bailey explains why it decided to hold interest rates at 0.1% – despite predicting inflation will hit 5% next year

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.

Global stock markets have taken big hits this week as investors react to the implications of the company's cash crunch. Pic: AP
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Markets around the world were down on Friday as news of a worrying new variant spooked investors

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.

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Trio of property giants oppose Cineworld rent cuts plan

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Trio of property giants oppose Cineworld rent cuts plan

A trio of property giants has lodged a protest against a radical financial restructuring that will see Cineworld imposing steep rent cuts on its landlords.

Sky News has learnt that British Land, Landsec and Legal & General Investment Management all voted against the cinema operator’s restructuring plan this week.

Cineworld has confirmed plans to close six of its UK multiplexes, but documents circulated to creditors show almost 50 others are in categories requiring landlords to agree to revised rent deals in order to ensure their long-term viability.

Although they carry significant influence in the commercial property sector, the trio’s protest will have no impact on the outcome of the company’s proposals, since its owners are now also among its largest creditors, meaning they can effectively force the deal through.

According to documents sent to creditors during the summer, 33 sites – categorised as Class B – “require a reduction of rent to ERV [Estimated Rental Value] Rent in order to place the sites on a viable long-term footing”.

A further 38 of Cineworld’s cinemas would be unaffected, while another 16 Class C1 and C2 leases require reductions to either turnover rent or zero rent in order to render them financially viable.

The documents added that the company did not have sufficient funding to meet a quarterly rent bill on June 24 of £15.9m.

“The UK group did not have sufficient liquidity to make the June 2024 Rent Payment and required further funding from the US Group to meet this liquidity need.

“Absent this funding, the UK Group would have been insolvent on a cashflow basis.”

Cineworld is being advised by AlixPartners.

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Other cinema operators are now poised to step in to take over some of Cineworld’s sites.

The company trades from more than 100 locations in Britain, including at the Picturehouse chain, and employs thousands of people.

Cineworld grew under the leadership of the Greidinger family into a global giant of the industry, acquiring chains including Regal in the US in 2018 and the British company of the same name four years earlier.

Its multibillion-dollar debt mountain led it into crisis, though, and forced the company into Chapter 11 bankruptcy protection in 2022.

It delisted from the London Stock Exchange last August, having seen its share price collapse amid fears for its survival.

Cineworld also operates in central and Eastern Europe, Israel and the US.

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Consumer confidence slumps following warnings of ‘tough choices’ in budget ahead

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Consumer confidence slumps following warnings of 'tough choices' in budget ahead

A long-running measure of consumer confidence has slumped to levels last seen at the start of the year following warnings of “tough choices” ahead in the looming budget.

GfK’s Consumer Confidence Index fell seven points in September to minus 20, with significant drops in predictions for personal finances and the general economy over the coming year.

The report’s authors suggested it was “not encouraging news” for the new government, which has made growing the economy its top priority.

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But within weeks of taking the post of chancellor, Rachel Reeves – followed by prime minister Sir Keir Starmer – moved to warn of a legacy £22bn “black hole” in the public finances and said it would result in a painful budget on 30 October.

Among measures already taken include cuts to winter fuel payments, leaving up to 10 million pensioners up to £300 worse off, and inflation-busting public sector pay settlements.

Tax rises and spending cuts are widely expected in next month’s statement to MPs though The Times reported on Friday that a decision by the Bank of England to slow a programme of loss-making bond sales would leave Ms Reeves £10bn better off than she had anticipated.

It added that she was still expected to push forward with her budget plans anyway as a signal of her commitment to fiscal discipline.

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Chancellor: ‘One budget not enough’

The latest snapshot on the public finances, released by the Office for National Statistics (ONS) on Friday showed net borrowing of £13.7bn during August.

Its chief economist, Grant Fitzner, said: “Borrowing was up by over £3bn last month on 2023’s figure, and was the third highest August borrowing on record.

“Central government tax receipts grew strongly, but this was outweighed by higher expenditure, largely driven by benefits uprating and higher spending on public services due to increased running costs and pay.”

Consumer spending accounts for around 60% of the UK economy.

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Data released separately on Friday showed a 1% rise in retail sales volumes during August in the wake of weakness, mostly blamed on poor weather, over the previous couple of months.

The ONS said that the increase was driven by supermarket sales, as demand for BBQ food and drinks rose due to the arrival of some sunshine over the key holiday month.

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UK economy flatlines again

It also credited discounting by clothing retailers.

The data chimes with the latest updates from big retailers, including Next and B&Q’s owner, which have spoken of weak demand for so-called big ticket items such as home furnishings and kitchens respectively.

GfK’s closely-watched survey showed expectations for the general economy over the next 12 months fell by 12 points to -27, while the forecast for personal finances was down nine points to -3.

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Commenting on its key measures, including the headline figure, consumer insights director at GfK Neil Bellamy said: “These three measures are key forward-looking indicators so despite stable inflation and the prospect of further cuts in the base interest rate, this is not encouraging news for the UK’s new government.”

He added: “Strong consumer confidence matters because it underpins economic growth and is a significant driver of shoppers’ willingness to spend.

“Following the withdrawal of the winter fuel payments, and clear warnings of further difficult decisions to come on tax, spending and welfare, consumers are nervously awaiting the budget decisions on October 30.”

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Whitehall on alert as construction group ISG heads for collapse

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Whitehall on alert as construction group ISG heads for collapse

Thousands of construction industry jobs are at risk as ISG, a construction group which builds prisons and police stations, faces imminent collapse.

Sky News has learnt that Whitehall officials are lining up City advisers to work on contingency plans for ISG, which is expected to formally appoint administrators on Friday.

EY is on standby to handle the insolvency proceedings.

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Construction industry sources said that government officials were closely monitoring the crisis at ISG, which is expected to be the biggest casualty in the sector since Carillion collapsed in 2018.

ISG employs about 2400 people and counts Apple, Barclays and Google among its private sector clients in the UK.

It is also understood to be involved in construction projects for leading City law firms including Addleshaw Goddard.

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One insider said that EY would be appointed as administrator to eight ISG entities, including ISG Central Services and ISG Interior Services.

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The accountancy firm is said to have been scrambling to find a buyer for the company after a South African bidder pulled out of talks several days ago.

ISG is owned by Cathexis, a Texan-based investor.

EY and the Cabinet Office declined to comment.

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