Asian stocks suffer biggest drop in months as COVID - 19 variant found

Asian stocks suffer biggest drop in months as COVID - 19 variant found

SYDNEY, Nov 26 Reuters -- Stocks suffered their sharpest drop in three months in Asia on Friday, and oil plunged after the discovery of a new and possibly vaccine-resistant coronaviruses variant sent investors scurrying toward the safety of bonds, the yen and the dollar.

The index of Asia shares outside Japan fell 1.8%, its biggest drop since August. Japan's Nikkei lost 3% and the U.S. crude oil futures fell 2.7% due to demand fears.

S&P 500 futures were down 1% and Euro STOXX 50 futures down 2%.

The variant detected in South Africa, Botswana and Hong Kong, but scientists said it has an unusual combination of mutations and may be able to evade immune responses or make it more transmissible.

British authorities believe it is the most significant variant to date, worry that it could resist vaccines and have hurried to impose travel restrictions.

Ray Attrill, head of FX strategy at National Australia BankAustralia Bank in Sydney, said you shoot first and ask questions later when this kind of news erupts.

The bets on rate hikes fell as the Fed funds futures rallied and the two-year Treasury yields fell 6 basis points, the sharpest drop since March 2020.

South Africa's rand dropped more than 1% to a one-year low on Friday, while the risk-sensitive Australian and New Zealand dollar fell to a three-month trough.

Japan and Australia have hinted at possible border closures in response to the new variant.

Markets are anticipating a wave of infections if vaccines are ineffective, said Moh Siong Sim, a currency analyst at the Bank of Singapore.

Equity selling in Asia has global shares that are on course for their worst week since October. Dow Jones futures fell 1%, while FTSE futures fell 1.9%.

The moves in Treasuries were also sharp at the longer end, with 10 year Treasury yields down eight bps to 1.5618% and 30 year yields down 7 bps to 1.8963%.

That leaves yields in recent ranges, but heat has come out of wagers on the pace of rate hikes and the December 2022 Fed funds futures contract was last up 9 bps.

The yen went up by 0.6% to 114.67 per dollar and the Aussie was down 0.6% at $0.7141 at the end of the day. The euro was up 0.1% to $1.1221, as safety rather than policy differentials drove trade in Asia.

The moves come against a growing concern about COVID 19 outbreaks that have resulted in restrictions on movement and activity in Europe and beyond.

European countries increased COVID 19 booster vaccines and tightened curbs overnight. Slovakia announced a two-week lockdown, the Czech government will shut down bars early and Germany crossed the threshold of 100,000 COVID - 19 deaths.

On Friday, the city cut public transport and a limited tourism activity in Shanghai as China doubles down on its zero-tolerance approach, which is also unnerving for traders.