Stock markets roiled anew by fears about emerging coronavirus variant

Global stock markets and oil prices tumbled Friday after South Africa identified a new, potentially fast-spreading coronavirus variant and the European Union proposed suspending air travel from the region.

The 27-member EU proposed a mass travel suspension to member governments after South Africa said the so-called Nu variant was spreading in its most populous province.

Britain promptly banned flights from South Africa and five nearby countries. Austria imposed a 10-day lockdown while Italy restricted activity by unvaccinated people. Americans were advised by their government to avoid Germany and Denmark. Belgium and Israel have already reported a handful of people who have tested positive to the new variant, and the slew of data points has added up to a flurry of uncertainty.

In New York, the Dow Jones Industrial Average lost more than 2.5 per cent, its biggest decline in more than a year, to close at 34,899. In Toronto, the TSX Composite Index lost almost 500 points or, 2.25 per cent, to finish the day at 21,125. 

"This news has completely overshadowed early anecdotal reports of strong in-person and online traffic for Black Friday sales," said Colin Cieszynski with SIA Wealth Management in Toronto.

Friday would normally be a quiet day on U.S. stock markets because of the Thanksgiving holiday on Thursday, as stock markets in New York are scheduled to close at 1 p.m.

Oil and travel companies hit hardest

That thin trading could potentially make market anxieties worse as there is a smaller pool of buyers and sellers available to offset outliers.

"What you're seeing is the absence of a lot of active managers in the U.S. and a lot of concerned panic selling … around the world," said Dennis Mitchell, CEO of Starlight Capital, in an interview.

The VIX — which is known as Wall Street's "fear index" because it measures volatility — spiked by more than 40 per cent to above 26 points. That's its highest level since January 2021, before vaccination campaigns started to ramp up.

Anything related to energy or travel and tourism is being hit especially hard as investors digest the prospect of another round of limitations on international travel.

The North American benchmark oil price known as West Texas Intermediate lost more than $10 US to close at just over $68 a barrel. That's the worst one-day performance for oil since the price briefly plummeted below zero in April 2020.

Jeremy McCrea, managing director at Raymond James Energy Research, says while the anxiety is real, some of the oil selling is coming from traders just locking in profits from the recent run while they can.

"Given how much oil prices have moved up … there's a lot of profit taking, a lot of speculators saying, 'I'm not quite sure what this really means,' " he said in an interview.

"Wait a couple of weeks until we get a better idea of what this actually means."

McCrea said the oil market has just had an especially volatile few weeks, first with OPEC trying to ratchet prices higher by slowing production increase, then by the Biden administration releasing millions of barrels to have the opposite effect.

With fears now of a new variant that could curb global demand for oil, he said it shows there are "still a lot of big factors that can shift prices here quite a bit." 

Air Canada shares lost more than eight per cent while those of cruise line Carnival lost 11. Hotel chains Hilton and Marriott were both down by more than six per cent.

"These announcements have sparked a sell-off in travel-related stocks (airlines, cruise lines, hotels etc.) and has sparked a rally in stay-at-home and vaccine stocks," Cieszynski said.

Pfizer shares rose nearly seven per cent while Moderna shares jumped more than 22 per cent.

"Today's price action and abrupt moves were a good reminder of a need to avoid virus complacency into 2022," currency analyst Audrey Childe-Freeman with Bloomberg Intelligence said in a note to clients.

Lisa Kramer, a professor of finance at the Rotman School of Management in Toronto, says investors are reacting with a fear similar to what happened at the start of the pandemic.

"It isn't uncommon when we have dramatic news come out for some people to overreact," she said in an interview. "And it doesn't take a lot of people panicking for markets to react strongly."

Cryptocurrencies sold off heavily as investors ran toward things like gold, bonds and the U.S. dollar that are perceived to be safer stores of value.

"In times like this, we get a true sense of what investors consider to be real, reliable safe havens and bitcoin is off eight per cent today, which has delivered a fatal blow to its safe-haven credentials, putting an end to another crypto myth that has surfaced over the years despite there being zero evidence to back it up," analyst Craig Erlam with foreign exchange firm Oanda said.