Until there is greater certainty about the extent and aggressiveness of the latest South African variant it will be impossible to foresee its impact on markets and the economy, but taking into account that it is possible that they are resistant to current vaccines – although it is not yet known in what measure-, this would suppose a new scenario.
In a matter of hours, the outlook could turn 180 degrees .. We would move from a scenario in which inflation was the main threat, with unstoppable oil prices (which forced the US to announce the largest release of reserves from its history) and the first rate hikes in the short term, to an opposite scenario. Commodity and interest rate futures are showing some clues as to what the new scenario could look like if the new strain of covid is confirmed to be more contagious and resistant, something that is still under investigation.
In principle, it can be seen that this new scenario would be in the oil market. Brent and West Texas futures fell 10%. In dollars, this decrease represents the loss of more than US $ 8 in one session, which would leave the barrel below US $ 70 with the WTI. The price of natural gas, which is in the eye of the hurricane in Europe’s energy crisis, is also suffering. Futures correct around 4% and fall below 90 euros per Mwh.
The threat of an immune variant to vaccines would mean a drop in energy demand given the possibility that harsh confinements are extended. Oil and gas have been two of the main drivers of inflation to date. So cheaper energy would detract from inflationary pressures in the weeks and months to come.
Source From: Ambito
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