Asian markets were mixed on December 2 and oil edged up with traders trying to claw back Omicron-induced losses but still full of uncertainty after Wall Street suffered a late plunge in response to the US reporting its first case.
News that a patient had come down with the new variant sent shivers through US investors who fear authorities will be forced to reintroduce strict containment measures or even lockdowns, derailing the recovery in the world’s top economy.
That comes on top of a widespread belief that the Federal Reserve – the US central bank – will end its vast bond-buying financial support programme quicker than expected and begin hiking interest rates next year to prevent inflation – now at a three-decade high – from running out of control.
Traders were already feeling uneasy in recent weeks on concerns about the sharp rise in prices around the world caused by supply chain snarls, a spike in energy costs and a labour shortage.
The announcement of Omicron – and warnings that vaccines may not be as effective against it – sent them over the edge on November 26.
Experts say it will take weeks to fully understand the true danger of Omicron, though the World Health Organisation said vaccines would probably fend off the worst of the variant while Australia’s chief medical officer suggested it might not be as deadly as others.
Still, markets are highly sensitive to any negative headlines on the crisis, with the VIX gauge of volatility at its highest level since the start of February.
“Equity markets continue to play Omicron tennis, and traders looking for short-term direction should just wait for the next virus headline and then act accordingly,” said Oanda’s Jeffrey Halley. “Volatility, and not market direction, will be the winner this week.”
Meanwhile, the Organisation for Economic Cooperation and Development (OECD) grouping of major industrialised nations warned the mutated strain threatens the global recovery and cut its growth outlook for this year.
The disquiet on trading floors was evident in New York on December 1 when the announcement of the strain in the US sent all three main indexes into the red, having spent most of the day in positive territory.
“The Omicron variant is the number one uncertainty facing the US economic outlook,” Kim Mundy of the Commonwealth Bank of Australia said.
Tokyo, Shanghai, Sydney, Singapore, Wellington and Bangkok all fell but Hong Kong, Seoul, Taipei, Mumbai, Jakarta and Manila rose.
London, Paris and Frankfurt dropped at the open.
Eyes were on the latest meeting of Opec and other major oil suppliers on December 2 as they were due to discuss their plan to raise output each month to help quell prices, with the likely impact of Omicron on demand likely to be a major talking point.
The grouping has already raised the possibility it will pause the increases, having been upset by a decision by the US and other major consumers including China to release some of their own reserves.
Both main crude contracts rose on December 2, though they remain well below their levels from a week ago before they tanked more than 10 per cent in reaction to the Omicron announcement.
“The arrival of the Omicron variant and the ensuing sell-off obviously increases the odds that Opec+ will opt to hit the pause button,” Helima Croft of RBC Capital Markets said.
Investors are also awaiting the release of US jobs data on December 3, which will provide the latest snapshot of the state of the world’s top economy.