Market volatility continues as Omicron fears re-assessed

Financial markets were harshly impacted last week namely due to the recent discovery of the Omicron coronavirus variant. Indeed, equity markets and commodities traded lower in recent days predominantly over concerns that the new variant might possibly alter the path of the long awaited global economic recovery, at a time when the Federal Reserve (FED) has signalled a speedier tapering of monetary stimulus to tackle the recent surging inflation.

Global stocks rallied by the most in over a year earlier this week, with investors largely encouraged by early indications that the Omicron coronavirus variant might possibly prove to be less serious than initially expected. Notwithstanding the fact that scientists at present are still studying the severity of the new variant, and its potential to evade vaccines, some data emerging from South Africa had suggested that this strain could result in less serious illness than the previous wave of infections.

Another plausible reason for the surge in equity prices this week include signals from China that authorities are willing to stimulate the country’s current slowing economy. Specifically, news emerged last Monday that China’s central bank would be willing to possibly free up liquidity vis-à-vis the country’s banking sector, explicitly by lowering the level of deposits that a financial institution must hold in reserve.

Inevitably, the aforementioned increased optimism resulted into higher commodity prices and declining government bond prices. Overall, Brent crude oil traded higher this week, increasing to over $75 a barrel (+3.2%), on Wednesday and settling on circa $74/ barrel on Thursday.

Notwithstanding the above, the majority of analysts have still urged caution, debating that there are still a number of unknowns about the variant, which are yet to be unveiled. For instance, Pfizer CEO, Albert Bourla, reported on Wednesday that individuals might possibly require a fourth Covid-19 shot sooner than expected after preliminary research shows the new omicron variant can undermine protective antibodies generated by the vaccine in which the company had developed alongside with BioNTech.

In addition, Pfizer and BioNTech released updated lab results earlier this week, illustrating that while a third shot is effective at fighting the omicron variant, the initial two-dose vaccination series dropped significantly in its ability to protect against the new strain. However, the two-dose series likely still offers protection against getting severely sick from omicron, the companies said.

Expectedly, global equities dipped on Thursday after logging three straight days of gains this week, with investors’ focus now turning towards economic data for clues on the FED's monetary policy decision. Ironically, following this week’s gains which were predominantly aligned to the positive updates on the Omicron coronavirus variant, yesterday’s marginal losses were also related to concerns over the potential new restrictions aimed at tackling the spread of the new strain.

Specifically, following the chaotic and latest pandemic related developments, the United Kingdom (UK) moved ahead with its new plan of restrictions to contain the recent surge in cases. Amongst others, these restrictions included guidance relating to work from home protocols and mandatory mask wearing for most indoor events and venues. Similarly, Denmark also tightened its virus control measures, following earlier moves by fellow European nations including Germany, Italy and Poland.

This article was issued by Andrew Fenech, Research Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.