New COVID-19 strain inflicts pain on equities and oil

NEW YORK (Reuters) -A gauge of equities around the world fell on Monday and oil prices plunged as concerns about a new coronavirus strain in Britain overshadowed optimism over a vaccine-fueled rebound in economic growth.

FILE PHOTO: View of the NYSE building and tree decorations in the Financial District of Manhattan, New York City, New York, U.S., December 17, 2020. REUTERS/Jeenah Moon

U.S. stocks, however, trimmed their losses as investors also weighed the benefits of a $900 billion fiscal stimulus deal reached by Congress over the weekend. The benchmark S&P 500 ended only slightly lower after having fallen as much 2% earlier.

Financial stocks also helped cap broader losses, rallying more than 1% after the Federal Reserve said the largest U.S. banks could resume stock buybacks.

The dollar index, which had risen earlier in the session as investors sought refuge in the greenback, gave up its gains and was last 0.17% lower.

“The initial sell-off was a knee-jerk reaction to the news we saw in the UK,” said Keith Lerner, chief market strategist at Truist Advisory Services in Atlanta. “As the day goes on, people are starting to sift through what’s in the fiscal package. In our view, it’s underappreciated.”

Still, MSCI’s gauge of stocks across the globe declined 0.81%.

The new coronavirus strain, said to be up to 70% more transmissible than the original, has put some 16 million Britons under tougher lockdowns and prompted several countries to shut their borders to the UK.

Worries over the new strain sent European stocks plunging. The pan-European STOXX index ended 2.3% lower.

In both Europe and the United States, travel and leisure stocks, which had been expected to be among the biggest beneficiaries of an economic reopening, fell.

The British pound also tumbled on virus concerns, as well as the lack of a post-Brexit trade deal ahead of a Dec. 31 deadline. It was last down 0.45% at $1.3462.

The euro traded lower, too, down 0.17% to $1.2234.

Meanwhile, commodities that had been expected to benefit from a growth upswing next year plunged.

Both Brent and U.S. crude dropped more than 2% while copper fell off the $8,000-per-tonne mark it recently scaled for the first time since 2013.

Even so, Emiel van den Heiligenberg, head of asset allocation at Legal & General Investment Management, said he expected vaccine rollouts would limit broad market downside.

“A correction is justified but a very strong sell-off would surprise us... because of the vaccine, by next March-April, we should be able to think about normalization again,” he said.

On Wall Street, the Dow Jones Industrial Average rose 37.4 points, or 0.12%, to 30,216.45, the S&P 500 lost 14.49 points, or 0.39%, to 3,694.92 and the Nasdaq Composite dropped 13.12 points, or 0.1%, to 12,742.52.

Volatility in U.S. equities jumped as the indexes swooned. Though it finished well off its session high, the Cboe Volatility Index, known as Wall Street’s “fear gauge,” notched its largest one-day gain since late October.

Safe-haven assets such as German and U.S. government bonds also rose early on Monday, though Treasury yields, which move inversely to prices, later pared losses.

Benchmark 10-year Treasury notes last rose 3/32 in price to yield 0.9396%.

However, gold, which usually rises during times of turmoil, fell on Monday. It last 0.3% to $1,876.09 an ounce after dropping as much as 1.3% earlier in the session.

Reporting by April Joyner in New YorkAdditional reporting by Gertrude Chavez-Dreyfuss in New York, Sujata Rao in London and Wayne Cole in Sydney; Editing by Andrea Ricci, Matthew Lewis and Dan Grebler