Markets recover as investors reassess Omicron variant damage
Markets have traded higher this Monday, unwinding some of Friday’s losses, as investors reassess the potential economic damage of the newly discovered Omicron Covid variant. The new coronavirus variant has spread rapidly around the world, prompting more travel restrictions, as new cases found in the UK, the Netherlands, Denmark and Austria. Risky assets suffered one of their worst days on Friday with all the key indices deeply in red. COVID-19 is back on the top of the agenda amid fears that the new variant could stall global economic recovery. The new strain may also affect how quickly Fed will unwind stimulus to tackle spiralling inflation. That would make Friday’s US jobs report and Tuesday Powell and Yellen testimonies closely watched. Oil prices will be in focus ahead of Thursday’s OPEC+ meeting. Meanwhile, Tuesday’s Euro Zone inflation will be in spotlight ahead of December ECB meeting. Key data releases this Monday include Eurozone business climate and economic sentiment for November, as well as flash inflation for Germany.
US stocks saw significant pressure on Friday following Thanksgiving holiday break and amid lighter volumes with markets closed early. The Dow Jones tumbled 2.5% to 34,899, the S&P 500 Index fell 2.3% to 4, 595 and the Nasdaq dropped 2.2% to 3,595. The markets fell after reaching record highs, as volatility ramped up and was exacerbated by reports of a new COVID-19 variant out of South Africa. The economic calendar was void of any major releases and equity news was also light. Treasuries gained solid ground with the yield on the 10-year falling 15 bps to 1.49% and 30-year bond rate decreased 12 bps to 1.84%. The US dollar Index traded at 96.283 this Monday, after dipping to a one-week low of 95.973 on Friday. While the dollar has to benefit from virus uncertainty with the status of save haven, Omicron clouds the outlook for when Fed can raise the interest rates. This week Friday’s US jobs report will be in focus with 550k jobs expected to be added in November, bringing the unemployment rate down to 4.5%.
European stock markets have opened firmer this Monday with DAX trading 1.2% higher, CAC 40 climbing 1.7% and FTSE rising 1.7%, as investors are reassessing risks associated with Omicron variant. EUR/USD is trading 0.4% lower at 1.1267. Key data releases on Monday includes Eurozone business climate and economic sentiment data for November and flash inflation for Germany. The Eurozone inflation data for November due to be published on Tuesday will be closely watched in light of upcoming December ECB meeting. With inflation surging the ECB is facing growing calls to tighten the policy, but with Europe battling a fresh surge of the virus and the news on the new strain will push against those calling for the early end of stimulus.
Japan stocks were lower after the close on Monday with Nikkei 225 declining 1.563% to hit a new 1-month low, as the country moved to bar foreigners to head off the Omicron strain. MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.1% but found support ahead of its 2021 low. The economic diary is busy in Asia this week with China’s manufacturing PMIs due on Tuesday. USDJPY steadied at 113.65 yen, after sliding 1.7% on Friday.
Oil prices are higher this Monday with Brent Crude gaining 4.3% to $75.83 after falling $9.50 on Friday and WTI up 5.1% at $71.62 having tumbled to $10.24 in the previous session. Oil prices rebounded, as investors looked for bargains after Friday’s slump and on speculation that OPEC+ may pause an output increase in response to the spread of Omicron. OPEC+ will meet on Thursday, when a policy decision will likely to be announced on whether to adjust the plan to increase output by 400k barrels per day in January