European stocks are set to open sharply lower Friday as the emergence of a new Covid-19 variant in South Africa dented risk appetite.

Scientists have said that the new variant has a high number of mutations that could make it more transmissible and allow it to evade some of the immune responses triggered by prior infection or vaccination. The WHO has called a meeting of experts for Friday to discuss whether to declare the new strain a “variant of concern.”

“With US markets closed for holidays, investors are voting with their feet this morning,” said Jeffrey Halley at OANDA.

In Asia, regional equity markets and currencies also were sharply lower. Markets are sensitive to any developments that suggest vaccines could lose efficacy, said Stuart Williams, head of equities at Nikko Asset Management in Auckland.

In Europe, monthly data continue to show a gradual but persistent slowdown in eurozone economic activity moving deeper into 4Q, Oxford Economics said.

“While we still expect the eurozone economy to experience above-average growth over the coming quarters, it is clear that growth rates have already peaked,” OE’s head of European economics, Angel Talavera, said.

Moreover, the sharp rise in inflation and the persistent issues with global supply chains continue to add downside risks to the 4Q outlook, the economist said.

The industrial sector remains a headwind for growth and equally concerning is the fact that activity in the services sector, while still robust, is also showing signs of easing, Talavera added.

Meanwhile, Germany’s new Social Democrat-Free Democrat-Green governing coalition is expected to be cautious macroeconomically, in line with its predecessors, the coalition agreement suggests.

Forex:

The Japanese yen strengthened markedly against G-10 and Asian currencies amid rising risk-off sentiment spurred by falling regional equity markets and a new Covid-19 variant detected in South Africa.

The Swedish krona has appreciated somewhat following Thursday’s Riksbank rate decision, mainly because the currency has weakened substantially over the past two weeks, but the announcement is likely to be negative for the currency, said SEB.

“Going forward, the central bank’s decision to be amongst the last developed central banks to raise the repo rate will be negative for SEK.” A return of EUR/SEK to well below 10.00 is dependent on seeing either the U.S. dollar fall substantially again or Sweden adopting a much more aggressive expansionary fiscal stance.