Omicron tilts the Market
Mohammed Shaheen
14-12-2021
Stock markets around the world have fallen after Moderna Chief cast doubts on the effectiveness of vaccines against the new coronavirus variant.
The emergence of the Omicron has kept global markets on tenterhooks, struggling to process the little, often contradictory information on the new COVID-19 variant. Over the past week, the Omicron variant of COVID-19 has given investors flashbacks to early 2020, when the pandemic first hit, upending lives and economies.
Market participants find themselves in the uncomfortable position of figuring out how their bottom lines will be affected by the new variant. Investors are keeping an eye on Omicron which has rattled markets in recent weeks.
The World Health Organization (WHO) on Wednesday said the variant could change the course of the pandemic. Scientists worldwide are scrambling to determine just how contagious and lethal the Omicron is, and how effective would existing vaccines be against this new variant.
While preliminary evidence from South Africa, where the variant was first identified, may suggest that the symptoms of the Omicron are milder than that of the delta strain, the WHO’s technical lead on COVID-19 said it is “too early to conclude” that.
While it’s hard to say yet what impact the Omicron could have on public health, there are three major market trends that will most likely occur in the coming term.
The Market saw a downfall
In the U.S., both the Dow Jones Industrial Average and the broader S&P 500 share indexes closed 1.9% lower. The tech-focused Nasdaq lost 1.6%.
The falls also reflect remarks made by the chairman of the Federal Reserve suggesting that the emergence of the new variant would worsen the uncertainty around economic recovery and inflation.
European markets, which were already feeling the pressure from the outbreak of the Delta variant, are now facing a more severe issue. Most investors feel the volatility will persist in the coming weeks but are looking for investment opportunities amid the turbulence whilst protecting their portfolios.
Inflation could get worse
The concern with the Omicron is that it will cause further manufacturing delays in factories around the world, increasing supply shortages which would then raise prices of the goods that are produced. With top-line inflation at a 31-year-high, Federal Reserve Chair Jerome Powell has finally admitted that high inflation will remain longer than expected. Investors should brace for more expensive prices over the next 18 months or so. Short-term rotation from risk assets including equities to safe-haven assets, such as government bonds, could continue. This would be partly driven by rising hawkish momentum amongst developed market central banks. They could also shift their focus back to reassuring markets about their commitment to protecting growth, away from the threat of inflation.
The Omicron response
The World Health Organization (WHO) has said it could take weeks to determine the severity of infections caused by the Omicron, and how much protection current vaccines offer.
The University of Oxford said there was no evidence suggesting the ineffectiveness of current vaccines against the Omicron. However, they are ready to rapidly develop an updated version of its vaccine with AstraZeneca if necessary.
Moderna and fellow drugs firms BioNTech and Johnson & Johnson are working on vaccines that specifically target the Omicron in case existing shots prove to be incompetent.
