Global markets rattled by omicron vaccine worries

LONDON — Global markets have been rattled once again by concerns that the new omicron Covid-19 variant could potentially evade vaccines.

Although health authorities have said it will take several weeks to gain a full picture of how omicron’s 30+ mutations affect its response to existing vaccines, Moderna CEO Stephane Bancel told the Financial Times on Monday that he expects them to be less effective against the new strain.

Bancel also told CNBC on Monday that it could take months to develop and ship a vaccine that specifically targets the omicron variant.

Shares in Asia-Pacific fell during Tuesday’s trade, led by declines of 2.4% for South Korea’s Kospi and 1.6% for Hong Kong’s Hang Seng index. Japan’s Nikkei 225 also shed 1.6%.

European stocks fell on Tuesday morning to all but erase Monday’s gains, after the market attempted to begin a rebound following Friday’s sharp global sell-off. The pan-European Stoxx 600 index was down 1% by early afternoon.

Stateside, Dow futures were down more than 400 points in premarket trade, as vaccine efficacy concerns reversed the uptick in sentiment following President Joe Biden’s assertion that economic lockdowns and further travel restrictions were currently off the table.

Spot gold prices rose 0.5% to around $1,793 per troy ounce, while fellow traditional safe haven the Japanese yen also climbed. The dollar was down 0.4% versus the yen on Tuesday morning at 113 by early afternoon in Europe.

The yield on the benchmark 10-year Treasury note — which moves inversely to prices — dropped by 8 basis points to 1.4443% at 4:30 a.m. ET, while the 30-year Treasury bond yield fell 5 basis points to 1.8281%.

In the crypto space, bitcoin dropped sharply early in the day but recovered to climb back above $58,000 just after midday in Europe. Oil prices also retreated, with international benchmark Brent crude sliding 3.2% to $71.08 per barrel and U.S. crude dropping 2.4% to $68.28.

The moves come after European and U.S. stocks attempted a relief rally on Monday following comments by the South African doctor who raised alarm about the new variant. Dr. Angelique Coetzee said symptoms of omicron had so far been extremely mild.

Charalambos Pissouros, head of research at JFD Bank, said the week’s moves so far evidenced how sensitive market participants are to omicron headlines.

“We believe that this will be the main theme for a while more. With that in mind, we are very reluctant to say that market concerns have diminished, and that yesterday’s rebound is the beginning of a long-lasting recovery. Any new negative headline has high chances of resulting in another leg of massive selling,” Pissouros said.

Various analysts have warned that volatility may abound in the coming weeks, but urged investors to stay the course and retain focus on the unchanged long-term fundamentals.

“Despite this uncertainty there remains a strong TINA trade in play – “there is no alternative” (to buying equities). We don’t believe the arrival of a Covid-19 strain which may or may not be more virulent will be enough to derail this TINA theme into Christmas,” said James Penny, U.K. chief investment officer at TAM Asset Management.

Penny noted that markets are in a different place now to where they were when the delta variant hit earlier this year, with inflation running hot and investors prepared for monetary policy tightening. He suggested this may be having a knock-on effect on how aggressive the current “buy the dip” mentality is among investors.

“We maintain the direction of travel is to continue to add to equity positions rather than run for the hills, but more on the depth of this positive sentiment will be uncovered on Friday when U.S. job numbers for November are released and the virological blueprint of Omicron is laid out,” Penny said.