COVID-19 is becoming a major topic for investors once again amid fears that a new virus strain Omicron could slow the global economic recovery after a nearly two-year pandemic. Until Friday, investors were optimistic about the strength of the global economic recovery amid widespread availability of vaccines and advances in treatment, despite concerns about steadily rising inflation. But late last week, global stock markets lost $3.3 trillion in market value as investors faced a question of whether they were too early to discount a possible pandemic resolution due to the emergence of a new strain of coronavirus in South Africa. Although there is still little about a new version, scientists said it has a large number of mutations that could make it resistant to vaccines and more easily transmissible than the Delta variant. But there is positive news. On Sunday, the South African Medical Association chairman said the new variant of the Omicron coronavirus, though more contagious, causes mild illness without obvious symptoms.
The US stock market closed Friday in the red zone. By the close of the stock market Dow Jones decreased by 2.53% (-2.73% for the week), S&P 500 dropped 2.27% (-2.42% for the week), NASDAQ technology index lost 2.23% (-3.43% for the week) and became the leader of the fall among the main US indices. But the stocks of energy, financial, and tourism companies took the heaviest hit, which was caused by the detection of a new strain of coronavirus. The Cboe Volatility Index (VIX), also called Wall Street’s “fear index,” jumped 40% on Friday, the maximum value since January 2021.
European stock indices also followed a general panic wave of sell-offs amid a new strain. The British FTSE 100 index decreased by 3.64% on Friday (-2.49% for the week), Italian FTSE MIB lost 4.60% (-5.49% for the week), French CAC 40 decreased by 4.75% (-5.48% for the week), Spanish IBEX 35 decreased by 4.96% (-4.42% for the week), and German DAX index fell by 4.15% and became the leader of the fall with -5.75% for the week. Germany, Spain, and France will release inflation data on Monday and Tuesday. As inflation rises, the ECB is increasingly being called on to tighten monetary policy, but with Europe struggling with a new outbreak of the virus and news of a new strain, policymakers have a new argument for keeping the stimulus program as long as possible.
Gold increased more than 1% on Friday, rising above the $1,800 an ounce level, as investors began looking for safer assets after discovering a new strain of the coronavirus. But let’s not forget that gold and silver prices are inversely correlated with the dynamics of US Treasury yields, which are trending upward amid the QE reduction. Thus, fundamentally, the precious metals prices will have a negative dynamic until the middle of the next year.
Oil prices fell $10 a barrel on Friday, the biggest one-day drop since April 2020, as news of the new Omicron option caused many countries to rush to limit travel, which strengthened the concerns that in the first quarter of next year there may be an excess supply. Also, traders shouldn’t forget about the release of strategic reserves by the US and several other consuming countries (Japan, South Korea, India, China, and others). Crude oil prices fell 13.1% on Friday, the 9th biggest one-day decline on record.
Asian stock indices also closed Friday in negative territory. Japan’s Nikkei index decreased by 2.53% (-3.00% for the week), Australia’s ASX 200 lost 1.73% (-1.58% for the week), China’s benchmark CSI 300 index decreased by 0.74% (-0.72% for the week), and Hong Kong’s Hang Seng lost 2.67%, closing the week down 3.90%, making it the biggest Asian decline.
At the commodities market, futures on natural gas (+7.43%) and corn (+1.07%) showed the biggest gains as of the end of the week. Futures on WTI oil (-13.04%), Heating oil (-12.36%), Brent oil (-11.35%), palladium (-5.11%), cocoa (-4.86%), copper (-4.04%), cotton (-3.33%), orange juice (-3.31%), lumber (-2.78%), sugar (-2.66%), and platinum (-2.3%) showed the biggest fall.
Main market quotes:
- S&P 500 (F) 4,594.62 −106.84 (−2.27%)
- Dow Jones 34,899.34 −905.04 (−2.53%)
- DAX 15,257.04 −660.94 (−4.15%)
- FTSE 100 7,044.03 −266.34 (−23.64%)
- USD Index 96.07 −0.70 (−0.73%)
Important events for today:
- Japan Retail Sales at 01:50 (GMT+2);
- Japan BoJ Gov Haruhiko Kuroda’s Speech (Tentative);
- Germany Prelim Consumer Price Index (m/m) at 15:00 (GMT+2);
- US Pending Home Sales (m/m) at 17:00 (GMT+2);
- ECB President Lagarde’s Speech at 19:15 (GMT+2);
- US FOMC Member Clarida’s Speech at 20:00 (GMT+2);
- Canada BoC Gov Macklem’s Speech at 21:00 (GMT+2);
- US FOMC Member Williams’s Speech at 22:00 (GMT+2);
- US Fed Chair Powell’s Speech at 22:05 (GMT+2).
