Omicron scare pushes global risk assets lower
By Neil Dennis
13:50, 30 November 2021
Global markets entered another session of risk-averse selling on Tuesday as fears over the potential economic impact of the spread of new variants of coronavirus continued to cast a pall over investor sentiment.
Riskier assets, such as equities and commodities, fell sharply while safer assets, including Treasury bonds and gold, provided haven support.
Markets have been in a volatile state after last week’s announcement of a new Covid mutation – now called the Omicron variant – caused a major sell-off of risk assets on Friday, with oil prices losing more than a tenth.
While Monday’s session saw some recovery, Friday’s losses were never recouped and by the end of trading most stock indices were off their worst levels.
Stocks tumble
Half an hour before the Wall Street open on Tuesday, index futures were indicating a lower open for US stocks, with the Dow likely to start around 1% weaker and the S&P 500 about 0.9% lower.
In Europe, the FTSE 100 was down 0.7%, while the STOXX Europe 600 shed 0.8%. In Asia, the Hang Seng in Hong Kong lost 1.6% and the Nikkei 225 in Tokyo fell 1.6%.
The latest round of risk aversion was cast on rising doubts that current vaccines offer the sufficient protection to counter the threat of widespread infections from new variants, such as Omicron.
“Markets are awaiting some solid confirmation that the current vaccines offer enough protection against the Omicron variant before jumping back on risk-on trades,” said Francesco Pesole, FX strategist at ING.
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Currencies
Indeed, foreign exchange markets reflected similar risk-off strategies, with emerging market currencies feeling the most pain: the Turkish lira was among the worst performers, down 2.1% against the dollar, while the South African rand lost 1%.
Conversely, the haven currencies performed well: the Japanese yen was up 0.7% against the dollar while the Swiss franc gained 0.6%.
Oil sell-off resumes
Oil prices were, again, victims of the heavy selling due to fears of falling demand should the spread of the virus cause widespread disruption to travel and economic activity, as in the first two Covid waves.
Brent crude shed 3.9% to $70.37 a barrel while the NYMEX West Texas Intermediate lost 4% to $67.19 a barrel.
Haven buys
Among the assets investors ran to in order to give their portfolios some protection was ultra-safe government bonds, such as US Treasury bills.
As investors sought the safety of Treasuries, yields were sent scuttling lower, with the 10-year benchmark yield falling 10.7 basis points to a near two-month low of 1.41%.
Gold was also sought out for its haven qualities – gaining 0.7% to $1,798 an ounce.
Read more: Gold or bitcoin? What’s the best buffer against inflation in 2021?
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