Futures in the United States and Europe have changed their direction and they are trading sharply lower today as investors have started to pay attention to Omicron news. The biggest worry among investors and traders is whether the current vaccine is effective or not, and how dangerous the current variant is. Something which is also keeping traders on edge is concern over another lockdown. However, President Joe Biden soothed markets by stating that the resumption of lockdowns is not on the cards, and as of now, no more new travel restrictions will be implemented in the U.S. His statement triggered a rally in the markets yesterday and the US stock markets posted a strong rebound.
Today, investors will be hearing from Fed Chair Jerome Powell, FOMC member Williams, and FOMC member Clarida. Hopefully, we will get some clues as to how the Fed thinks the new variant may affect its monetary policy and the overall American economy. Treasury Secretary Janet Yellen is also expected to speak today in front of the Senate Banking Committee. In terms of data, we are expecting the Chicago Purchasing Managers Index to be released today as well.
Over the past few days, investors have been on a roller coaster ride, and they are likely to remain edgy in the coming days as well. For instance, the Dow fell nearly 900 points on Friday, and then, on Monday it changed its direction again and close 230 points higher.
The culprit behind the rise in volatility is the newly found Omicron variant, which scared governments around the world and pushed them to impose travel restrictions and drove investors to reduce their exposures to risky assets. As a result, the volatility index (VIX), which measures market uncertainty, jumped above the 28 mark. However, yesterday, the VIX fell, but is still hovering around the 22 mark.
However, on Monday, stock markets seemed oversold, and investors capitalised on the situation by getting back into the game and started to bag some bargains. Stock market sentiment stabilised because, according to doctors in South Africa, symptoms associated with the Omicron variant seem to be very mild as opposed to those seen with the Delta variant. However, authorities still need some weeks to understand exactly what the new strain means for policies and what necessary steps need to be taken to curb its spread.
This week, investors should closely watch the price action and assess whether stock markets are at risk of another slump or will stock traders see further retracement in prices because of the traditional dip buying strategies used by investors.
President Biden commented that Americans should remain calm while Fed Chair Jerome Powell warned that the new variant poses a threat to achieving full employment and stable prices. On the other hand, Pfizer communicated that it would need approximately 2 to 3 weeks to understand how effective the vaccines in distribution are against the Omicron variant.
A benchmark measuring home purchases in the U.S. jumped to its highest level in 10 months in October, indicating stable demand for housing. The pending home sales index published by the National Association of Realtors jumped 7.5% on a month over month basis, while the expected jump was 1%.
Due to an overall surge in market sentiment and retracement seen in financial markets, Bitcoin prices also rose above the $58,000 mark. Over the last few months, cryptocurrencies have been performing very well, even shattering their previous records. As a result, companies positively linked to Bitcoin and other digital coins have also been rising in value, as can be seen from MicroStrategy’s example. Microstrategy has become the leading company with the greatest exposure to Bitcoin on its balance sheet. In the recent dip in crypto prices, the company purchased $414 million worth of Bitcoin.
Investors should note that MicroStrategy now holds about 121,044 tokens, worth a whopping $7 billion. If Bitcoin prices continue to climb from the dip in prices seen during the Thanksgiving holiday, the company will have potentially doubled its profits considering the mean price paid by the company to acquire the digital assets. After MicroStrategy announced its recent purchase of Bitcoins, the company’s stock price jumped to $693, rising nearly 4.5%.
Similar to the broader financial markets, investors saw oil prices rising as well, after dropping below the $70 mark, as they feared that the Omicron variant would likely dent oil demand because of lockdowns and flight restrictions. However, until now, there have been no clear reasons for the markets to panic as symptoms of the new strain seem to be mild and authorities are confident that they will likely be able to control the situation in an effective and efficient manner.
Another reason for the drastic drop in oil prices could be that investors were cashing in their profits sparked by the Omicron news as oil prices had previously hit their highest value in about seven years and surpassed the $85 mark in October. Brent crude oil, the international benchmark, had also hit its 3-month peak. The most important event for oil is OPEC+’s meeting to be held this week, in which the group will discuss the risk of Omicron to broader oil markets and decide on production for January 2022.
As stock markets seem to be returning to normalcy, treasury yields for 10-year bonds have risen above 1.5%, and treasury yields for 30 year bonds have surpassed 1.86%. The dollar index also jumped. As treasury yields and the dollar index move inversely to gold prices, the prices of the precious metal fell. Moving onwards, investors should closely monitor updates on the Omicron variant as gold is considered a safe haven asset and its price rises in times of volatility and uncertainty in broader financial markets.
Asian Pacific Markets
Asian Pacific stock market indices are up after we saw positive factory activity data coming out of China for the month of November. The Chinese Purchasing Managers’ Index was 50.1, versus an expected 49.6. Investors should understand that a reading above 50 indicates an expansion in the economy.
As of 01.13 a.m. EST, the Nikkei rose 0.35% and the Shanghai index climbed 0.23%. The Hang Seng index, in Hong Kong, fell 1.09%. The ASX 200 index jumped 0.75%, and the Seoul Kospi dipped 1.00%.