Global shares decline on Omicron uncertainty
Summary:
- US stock indexes mixed at open
- European shares decline
- Oil futures extend losses
- 10 year Treasury yield declines
Global shares fell Thursday, reversing gains from the previous session as a lack of information about the Omicron coronavirus variant left markets volatile, while crude oil futures extended losses.
Global equity markets first dropped on fears over the new variant on Friday last week, and have since see-sawed as investors weighed up the possible impact of countries imposing travel restrictions in response to concerns Omicron may be more contagious than previous variants.
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On Wednesday, US stocks started to bounce back but then fell after the first Omicron case in the United States was confirmed.
MSCI's gauge of stocks across the globe shed 0.09%.
Major US stock indexes were mixed at the open.
The Dow Jones Industrial Average rose 149.84 points, or 0.44%, to 34,171.88, the S&P 500 gained 5.51 points, or 0.12%, to 4,518.55 and the Nasdaq Composite dropped 16.77 points, or 0.11%, to 15,237.29.
The pan-European STOXX 600 index lost 1.62%.
The information investors are waiting for is whether the spread of the virus translates into higher hospitalizations, and any comments from vaccine-makers on how well their shots work against this variant.
Also weighing on stock markets, and flattening the US yield curve, were remarks by Federal Reserve Chair Jerome Powell, who said he would consider a faster end to the Fed's bond-buying program, which could open the door to earlier interest rate hikes.
In his second day of testimony in Congress on Wednesday, Powell reiterated that the US central bank needs to be ready to respond to the possibility that inflation does not recede in the second half of next year.
"In the past what we've seen is central banks using Covidas an excuse to remain dovish, and what we're seeing is central banks turn hawkish despite rising concerns around COVID, so it is a bit of a shift in communication," said Mohammed Kazmi, portfolio manager at UBP.
The Omicron variant also curbed risk appetite, making safe-haven bonds more attractive to investors.
Benchmark 10-year notes last rose 7/32 in price to yield 1.4121%, from 1.434% late on Wednesday.
"A gloomier December now looms, as risk-off trades dominate," wrote Chris Beauchamp, chief market analyst at IG, in a note to clients.
Volatility in equity markets as measured by the Vix, known as Wall Street's "fear index", hit its highest since February on Wednesday, before easing somewhat on Thursday .
Oil futures fell after OPEC+ agreed to go ahead with its planned January oil output rise of 400,000 barrels per day.
US crude recently fell 2.42% to $63.98 per barrel and Brent was at $67.31, down 2.27% on the day.
Currency market volatility also rose, with euro-dollar one-month volatility gauges below Monday's one-year peak but still at elevated levels .
"Liquidity in some areas of the market is still quite poor as people grapple with this news and as we head towards year-end, a lot of it is really liquidity driven, which is leading to some volatility," said UBP's Kazmi.
"Even in the most liquid market of the US treasury market we've seen some fairly large moves on very little newsflow at times."
