Flight to safety as variant fears soar

A tough end to the week

Risk assets are getting pummelled at the end of the week as a new Covid variant sparks fears of new restrictions and lockdowns.

The most worrying thing about the new strain at the moment is how little we know about it, with early indications being that it could be more problematic than delta. The biggest fear is that it will be resistant to vaccines and be a massive setback for countries that have reaped the benefits from their rollouts.

We’ll no doubt learn more in the days and weeks ahead but for now, fear of the unknown will weigh heavily going into the weekend and could carry over into next week. We’re seeing a typical flight to safety in the markets with equities, commodity currencies and oil getting whacked and traditional safe havens like bonds, gold, the yen and swissy getting plenty of love.

In times like this, we get a true sense of what investors consider to be real, reliable safe-havens. And bitcoin is off 8% 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. Maybe one day investors will have a different opinion but right now, when their cash is at stake, they’re sticking with safe-haven assets with a track record, as they should.

Pfizer has sought to calm nerves, stating that should a vaccine-escape variant emerge, it could produce a tailor-made vaccine in about 100 days. Three months can feel like a long time but when compared to where we were 18 months ago, that is very reassuring as a worst-case. It may not be quick enough to prevent more restrictions this winter though.

Erdogan standing firm on interest rates

Turkish President Erdogan is successfully talking down the lira once again, claiming there’s no turning back from the new economy program and that interest rates will decline. It’s incredible to see a President have such disregard for something that will have such a huge impact on so many people. It’s like he’s playing with the markets to see what he can get away with. In a sign of Erdoganomics fatigue, the currency has quickly recouped the more than 2% losses it incurred immediately following the comments. A sign that these antics are now expected and priced in, it seems.

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