Asian markets fell again Monday but oil rebounded strongly as investors try to assess the threat of the new Omicron Covid strain on the global economic recovery.
Equities around the world went into freefall Friday on news of the heavily mutated variant, which some fear could evade vaccines, as it forced several governments to throw up flight bans from southern Africa where it was discovered and introduced fresh containment measures.
The crisis added to an already jittery mood on trading floors caused by surging inflation and central banks starting to roll back their ultra-loose monetary policies to prevent prices from running out of control.
“Omicron’s uncertainty has triggered a rethink on the global economic outlook,” said National Australia Bank’s Rodrigo Catril. “A new Covid wave may or may not be more infectious or deadly, but until we know more markets are likely to remain jittery.”
Some traders were taking solace in comments from two South African health experts who said symptoms of Omicron appeared to be mild so far, though the World Health Organization has urged caution.
And analysts warned markets would remain on edge until more was known about the variant.
“So perhaps we have a highly contagious, yet mild strain,” said Matt Simpson of StoneX Financial. “And if that is the case, markets could very well rally through December (as original fears recede) and markets refocus on Fed tightening and of course Santa’s rally.
But Priya Misra, at TD Securities, added: “We really need some more answers to figure out the impact on growth.
“Risk assets are pricing in uncertainty.”
All three main indexes on Wall Street ended more than 2% down, while London, Paris and Frankfurt were also pummelled at least 3.6% lower.
But even those losses were dwarfed by crude, which fell off a cliff on its worst day since WTI went below US$0 at the outset of the pandemic, with dealers fretting over the possible impact on demand if more lockdowns are introduced.
And Asian equities, which also suffered hefty selling pressure, extended losses on Monday, though the selling was a lot lighter.
Tokyo led losses, shedding 1.6%, after Japan said it will reinstate tough border measures, barring all new foreign arrivals, just weeks after a softening of strict entry rules. The news hit travel stocks with airlines JAL and ANA shedding around 4% each.
Hong Kong, Sydney, Seoul, Singapore, Taipei, Wellington and Manila also retreated. Shanghai also fell but the losses were limited, while Mumbai and Jakarta edged up.
But crude enjoyed a bounce, with WTI up more than 4% and Brent more than 3% higher – having cratered 13.1% and 11.5%, respectively, on Friday.
The gains came as reports said OPEC and other major producers were considering whether or not to continue their plan of raising output each month, in light of the latest rout and with the prospect of new shutdowns if Omicron becomes a major problem.
“The sell-off on Friday appeared a complete overreaction,” Daniel Hynes, at Australia & New Zealand Banking Group, said.
“While it’s still too early to estimate what this could mean for oil demand, we think the market will find some support as opportunistic buying emerges.”
In Hong Kong, casino operators plunged after police said the head of gambling enclave Macau’s largest junket operator had confessed to running illegal betting activities.
The arrest of Alvin Chau at the weekend marks the first of such a high-profile figure from the city’s gaming industry and comes as Beijing embarks on a crackdown, with plans announced in September to increase government regulation of the sector.
MGM China lost more than 10%, while Galaxy Entertainment, Wynn Macau, Melco, SJM Holdings and Sands China also suffered steep losses.
Key figures around 0710 GMT
Tokyo – Nikkei 225: DOWN 1.6% at 28,283.92 (close)
Hong Kong – Hang Seng Index: DOWN 1.1% at 23,827.61
Shanghai – Composite: FLAT at 3,562.70 (close)
West Texas Intermediate: UP 4.7% at US$71.35
Brent North Sea crude: UP 3.8% at US$75.52
Dollar/yen: DOWN at 113.20 yen from 113.38 yen at 2100 GMT on Friday
Pound/dollar: DOWN at US$1.3336 from US$1.3340
Euro/dollar: DOWN at US$1.1281 from US$1.1311
Euro/pound: DOWN at 84.59 pence from 84.77 pence
New York – Dow: DOWN 2.5% at 34,899.34 (close)
London – FTSE 100: DOWN 3.6% at 7,044.03 (close)
– Bloomberg News contributed to this story –