Mutant Covid Strain, Stimulus Deal Agreed, Musk on Bitcoin – What’s up in Markets

By Geoffrey Smith 

Investing.com — Global stocks tumble and the dollar surges as the U.K. discovers a new strain of the Covid-19 coronavirus. Congress finally agrees a $900 billion relief package and will likely vote on it later in the day.  Elon Musk flirts with Bitcoin on Twitter as Tesla shares make their debut in the S&P 500 (they’re down 6% in premarket). And oil falls 5% as the U.K.’s virus news takes the froth off an overextended rally. Here’s what you need to know in financial markets on Monday, December 21st.

1. U.K. isolated after discovering new Covid-19 strain 

The U.K. announced it had identified a new strain of the Covid-19 virus that is more contagious than the strain that has swept through the world this year.

There is no information yet to suggest that it is any more virulent than the initial strain, or that the vaccines either already approved or in development will be any less effective against it.  The Food and Drug Administration approved Moderna’s mRNA-based vaccine on Friday, the second drug to receive formal clearance from U.S. regulators.

Countries from France to India reacted by cutting travel links to the U.K., while the British government abruptly cancelled its plans to relax restrictions on social gatherings over Christmas and instead instituted a new and tighter tier of regulations that will affect most of England. So far, the new strain is concentrated in south-east England, including the capital, London.

The pound fell by 2% against the dollar and over 1% against the EUR/GBP.

2. U.S. Stimulus package finally agreed; votes due

U.S. lawmakers finally approved a $900 billion relief package that includes $600 checks to households, and a $300 weekly enhancement for federal unemployment benefits for 11 weeks.  It also extends a moratorium on evictions that was due to expire at the end of the year. As such, it covers the eventualities that had the greatest potential to undermine household spending through the winter.

The package also reportedly includes aid for schools, vaccine distribution and small businesses, with $280 billion earmarked for the Payment Protection Program alone.

Votes in the House and Senate have been scheduled for today, after an emergency stopgap bill to keep funding the government was approved over the weekend.

3. Stocks tumble, dollar surges on new virus reports

Global stocks corrected downward sharply overnight in response to the news from the U.K., which analysts said poses fresh risks to the growth outlook for the first quarter.

The dollar, meanwhile, gained across the board, reversing some of its losses in recent weeks, in which optimism about a strong rebound in global growth next year had encouraged a hunt for yield in foreign currencies. By 6:25 AM ET (1125 GMT), the dollar index was up 0.9% at 90.802, while the greenback was also up 0.5% against the offshore yuan.  It also rose over 2% against the South African rand and Russian ruble, and over 3% against the Mexican peso.

U.S. stock markets are also indicated to open sharply lower, with the news shaking out some of the complacency that had been in evidence in the last couple of weeks. Dow Jones futures were down 560 points, or 1.9%, while S&P 500 futures were down 2.1% and NASDAQ Futures were down 1.4%, marginally outperforming as cyclicals, once again, took the brunt of the selling.

4. Musk flirts with crypto as Tesla debuts in S&P 500

Tesla (NASDAQ:TSLA) stock will trade as part of the S&P 500 for the first day, after their inclusion in the index came into effect at the end of Friday’s session.

The shares are indicated down over 6% in premarket trade, in what looks like profit-taking now that the big trade of the year – retail investors anticipation of forced buying by passive institutional accounts – is effectively completed.

Over the weekend, founder and chief executive Elon Musk raised eyebrows by posting about Bitcoin and engaging in a brief exchange with one enthusiast, MicroStrategy founder Michael Saylor, about the possibility of converting large amounts of the cash on Tesla’s balance sheet into Bitcoin. The idea was Saylor’s but Musk – conspicuously – did not shoot it down. Bitcoin itself was caught up in the risk-off movement on Monday, falling over 3% to $22,671 on the Bitfinex exchange.

5. Froth comes off oil market as demand fears rise

The rally in crude oil prices went into reverse violently, with futures losing over 5% after the news from the U.K. cast fresh doubt over the near-term demand outlook.

For all that vaccine distribution is expected to smooth a return to pre-pandemic levels of consumption next year, OPEC and the International Energy Agency both said in their latest monthly reports that the recovery will take place largely in the second half.

In addition, Ole Hansen, head of commodities research at Saxo Bank, noted that the rally was over-extended, with speculative long positions in U.S. crude futures and Brent rising by 250 million barrels in the six weeks through mid-December.

By 6:25 AM ET, WTI was down 5.1% at $46.75 a barrel, while Brent futures were down 5.0% at $49.67 a barrel.