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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.
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…
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Source : skynews
