Stocks and oil prices crash as Omicron makes waves



  • Asian Stock Markets:
  • Nikkei, US and European equity futures down
  • Beijing cuts one-year loan rates by 5 basis points
  • Fed hawks talk about March rate hike and yield curve flattening
  • The dollar close to the highest of the year, the euro in difficulty

SYDNEY, Dec.20 (Reuters) – Asian stock markets fell and oil prices fell on Monday as the surge in Omicron COVID-19 cases triggered tighter restrictions in Europe and threatened to flood the economy world in the new year.

Beijing lightened the mood a bit by cutting one-year loan rates for the freeze period in 20 months, although some have also hoped for a five-year rate easing. Read more

Chinese blue chips were down another 0.4% (.CSI300), while the MSCI Asia Pacific Ex-Japan Equity Index (.MIAPJ0000PUS) was down 0.8%. The Japanese Nikkei (.N225) fell 1.7%, and South Korean stocks (.KS11) fell 1.2%.

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S&P 500 futures fell 0.8% and Nasdaq futures fell nearly 1%. EUROSTOXX 50 futures were down 1.1% and FTSE futures were down 1.0%.

Omicron’s spread saw the Netherlands lock in on Sunday and press others to follow, although the United States appeared ready to stay open. Read more

“Omicron is about to be the Grinch who stole Christmas from Europe,” said Tapas Strickland, director of economics at NAB. “With Omicron cases doubling every 1.5 to 3 days, the potential for hospital systems to be overwhelmed even with effective vaccines remains. “

As coronavirus restrictions cloud the outlook for economic growth, they also risk keeping inflation high and making central banks even more hawkish.

It should be noted that Federal Reserve officials were openly talking about raising rates as early as March and starting to degrade the central bank’s balance sheet in mid-2022. Read more

This is even more drastic than implied by the futures contracts, which have so far been well ahead of the Fed’s intentions. The market only assessed a 40% chance of a hike in March, with June still being the preferred month for take-off.

Such hawkish Fed chatter is one of the main reasons long-term Treasury yields fell last week as the short-term rose. That left the two to ten year curve near its flattest level since late 2020, reflecting the risk that stricter policy could lead to a recession.

BofA economists see this risk as a reason for bearishness on equities, although their latest survey of fund managers found only a 6% recession expected next year and only 13% were under- weighted on equities. Most remain overweighted in technology, with “long technology” still considered the most congested trade.

They also noted that for 2021, the winners were Oil with a gain of 48%, REITs at 42%, Nasdaq at 25% and Banks with a gain of 21%. Losers included biotech with a 22% drop, while China also lost 22%, silver 19% and JGBs 10%.

It was the best year for commodities since 1996 and the worst for global government bonds since 1949.

As of early Monday, US 10-year bond yields were down to 1.38% and well below their 2021 high of 1.776%.

The Fed’s hawkish turn, combined with the safe haven flows, supported the US dollar index near its best for the year at 96.674, after jumping 0.7% on Friday.

The euro was languishing at $ 1.1237, after losing 0.8% on Friday to threaten a year-low of $ 1.184. The Japanese yen has its own safe haven status and has held steady at 113.49 per dollar.

The British pound was down to $ 1.3224 as Omicron concerns wiped out any gains made following the Bank of England’s surprise rate hike last week.

Gold looked firmer at $ 1,801 an ounce, after breaking a five-week losing streak last week as stocks slipped.

Oil prices have come down on fears that the spread of the Omicron variant will dampen fuel demand and signs of improving supply.

Brent lost $ 1.66 to $ 71.86 per barrel, while US crude lost $ 1.44 to $ 69.42 per barrel.

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Editing by Sam Holmes and Kenneth Maxwell

Our standards: Thomson Reuters Trust Principles.



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