On Monday, there was more than a 5% decline in travel stocks, which brought about a fall in European shares, as the quick spread of a new coronavirus strain in the United Kingdom forced more stringent lockdown measures and also resulted in a travel ban from numerous countries. There was a 1.9% fall in the pan-European STOXX 600 index, which was on course for its worst session in the last two months after an effective lockdown was imposed in England and the government reversed its plans of easing curbs over Christmas because of a new coronavirus strain that appeared to be nearly 70% more infectious than the first one.
There was a 1.1% drop in London’s FTSE index and the pound also declined sharply. There was a 2.2% drop in Germany’s DAX. Market analysts said that they hadn’t priced in this negative development even remotely and it was taking a toll. The new strain indicated that the virus would continue to wreak more havoc in the next few months, which would mean things getting worse, such as more lockdowns, more restrictions, similar to what’s happening in London right now. This would result in a greater economic toll. European neighbors like the Netherlands, Italy, and Germany, along with Canada ordered a suspension of flights from the United Kingdom, while freight carriers were also included in France’s ban.
Leisure and travel stocks were on course for their worst day in the last three months with travel company Tui, carrier Lufthansa and British Airways owner IAG all plunged between 5.8% and 9%. There was also a 6.4% drop in Carnival Corp, the cruise operator. As there was a fall in crude prices, energy majors, such as Total, BP and Royal Dutch Shell, suffered from losses between 3.9% and 5.4%. A $3.5 billion to $4.5 billion writedown was also seen in the value of gas and oil assets, which further put pressure on Shell.
Moreover, the uncertainty associated with Brexit negotiation also weighed on sentiment. Since there are less than two weeks to go before Britain’s transition period from its exit from the bloc comes to an end, neither side has been willing to budge enough in order to reach a breakthrough. The concerns because of the new coronavirus strain also outweighed optimism about the agreement of a $900 fiscal stimulus package that was agreed upon in the US and will be voted on today.
According to scientists, the vaccines should still remain effective against the new strain that has been discovered. The Pfizer-BioNTech vaccine has already been rolled out by Britain, while the European Medicines Agency is going to give its approval today, followed by a nod from the European Commission on Wednesday. There was a 4.6% increase in BioNTech shares in Frankfurt. There were also some sparse gains seen in consumer and healthcare stocks. Nevertheless, things don’t look certain for now and the new strain came off as a surprise that the market simply wasn’t prepared for, thereby damaging the risk appetite of investors.