New Covid Variant Sparks Sell-off

Covid, Inflation, Oil

1: Markets were down significantly Friday morning due to the emergence of a worrisome Covid-19 variant that appears to be out-competing previous strains rather quickly (see chart). While authorities work to “contain” this variant, I’d guess it’s already spreading worldwide. Moreover, the political capital to take extreme measures required to contain a virus no longer exists, so many will be slow to act. Maybe this is a big deal. Maybe it’s not. Lots of unknowns right now - the market hates the unknown.

2: Inflation is a worldwide phenomenon right now. The first chart shows the change in the inflation rate between Q3 2019 and Q3 2021. Because it focuses on the change (as opposed to the absolute level of inflation), this chart illustrates how the pandemic response impacted inflation rates.

The second chart compares actual inflation rates by country.

3: Oil producers are experiencing cash flows not seen in years, due to high oil prices. Unfortunately, what’s good for producers is not good for developed world consumers. While the US administration is eager to offset higher prices with greater supply, OPEC has little incentive to act.