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European stocks hit as Omicron triggers market sell off

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·4 min read
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Stock markets Omicron threat
A healthcare professional administers a booster vaccine at a coronavirus disease pop-up vaccination centre at Wembley Stadium in London. Photo: Reuters

European markets were down on Monday as governments around the world introduce new restrictions to curb the spread of the Omicron variant.

In London, the FTSE 100 (^FTSE) fell 1.1% at close, while the French CAC (^FCHI) tumbled almost 1%. The DAX (^GDAXI) closed roughly 2% down in Germany.

"Until the macroeconomic landscape stabilises, investors are acting cautiously and withdrawing their investments from risky investments that are more positively linked to economic growth," said Naeem Aslam, chief market analyst at AvaTrade.

Omicron is rapidly spreading. According to the World Health Organization, cases are doubling every 1.5 to 3 days. It has been detected in 89 countries, is already the dominant strain in the UK, and could soon become so in Denmark as well.

The Netherlands has announced a strict lockdown over Christmas amid concerns over the Omicron coronavirus variant.

Germany is tightening restrictions on travel from the UK: airlines are banned from transporting British tourists to Germany.

And Ireland’s restrictions include curfews for pubs, restaurants and live events along with more intense testing for close contacts and travel into the country.

The FTSE 100 was down on Monday. Chart: Yahoo Finance UK
The FTSE 100 was down on Monday. Chart: Yahoo Finance UK

"Market participants have turned highly sceptical as possibilities of leading stock averages recovering lost ground in the remainder of 2021 have diminished," said Kunal Sawhney, CEO of Kalkine Group.

"Choppiness in markets is likely to continue in the near term, unless healthcare authorities or the vaccine makers come up with a consequential update with regard to the ongoing batch of jabs.

"Investors are now looking forward to some meaningful data and insight that can help them to ascertain the extent of damages due to Omicron variant as healthcare authorities, alongside the vaccine makers continue to contemplate the repercussions."

In India, the benchmark NIFTY was down 10% from its peak in October, putting the index in correction territory. 

"European and US equities are set to follow Asia lower later on, with futures on both the S&P 500 (-0.97%) and the DAX (^GDAXI) (-1.63%) both pointing lower this morning," Deutsche Bank said.

In the US, stocks were down at the European close.

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The S&P 500 (^GSPC) dipped 1.8% and the tech-heavy Nasdaq (^IXIC) fell 1.7%. The Dow Jones (^DJI) tumbled 1.9% lower.

The nation's top infectious disease expert Dr Anthony Fauci said: "Omicron's going to take over" this winter, and that Americans should brace for a "tough few weeks to months."

Other than the impact of the variant, which could mean inflation in many countries continues to soar, stock traders face "a number of uncertainties," said Aslam, "including US Senator Joe Manchin's decision to reject President Biden's $2tn tax and spending plan."

"Typically, trading volumes fall during this time of year, which causes even minor factors to cause large swings in stock markets."

Mark Haefele, chief investment officer, UBS Global Wealth Management was upbeat, stating that "in our view, markets can look through Omicron concerns, and the gradual pace of monetary tightening won’t bring the equity rally to an end."

He said that while the US Federal Reserve is accelerating the pace of stimulus withdrawal, with the federal funds rate still near zero, monetary policy remains very accommodative.

"Historically, stocks have risen after the Fed starts hiking although the pace of gains will likely depend on the speed of the rate hikes relative to the strength of the economy.”

According to Deutsche Bank analysts, the twin factors of further Omicron restrictions and Manchin’s announcement have weighed heavily on Asian equities overnight.

Stocks fell as China announced a cut in its one-year loan prime rate from 3.85% to 3.8% — the first such move since April 2020.

In Japan, the Nikkei (^N225) closed 1.2% lower while the Hang Seng (^HSI) was down almost 2%. The Shanghai Composite (000001.SS) fell 1.1%.

Oil prices fell as well, with brent crude futures (BZ=F) plunging about 3% to $71.30/bbl, amid worries the new strain will hurt demand and signs of improving supply.

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