Cases of the new omicron coronavirus variant are spreading and the WHO says symptoms are mild so far. Global markets face a week of uncertainty. China sends 27 warplanes close to Taiwan. Here’s what you need to know today.
Airlines, passengers and businesses scrambled to respond to a deluge of travel restrictions announced over the weekend to slow the spread of the omicron variant. Australia suspended direct flights from nine southern African countries. Singapore is watching the impact of the new strain “very closely” and may be forced to roll back some easing measures. The Philippines won’t welcome travelers from some European countries for the next several weeks. Meanwhile, the WHO is urging caution after two South African health experts, including the doctor who first sounded the alarm about omicron, indicated that symptoms linked to it have been mild so far. The variant appears to be more transmissible, reinforcing the need for vaccinations or booster shots, said the U.S.’s top infectious-disease doctor, Anthony Fauci.
The fate of global markets now depends at least in part on laboratories around the world probing the omicron strain, potentially leaving investors with weeks of uncertainty. Stocks looked set to fall in Asia on Monday while currency markets stabilized after Friday’s volatility. OPEC+ is moving two technical meetings to later this week after oil’s rout last Friday and to give its committees more time to evaluate the impact of a new strain. And pessimists rule emerging markets as central banks confront the fallout from the variant.
China’s Covid Zero strategy may be around a while longer. The country would face a “colossal outbreak” if it were to reopen in a similar manner to the U.S., researchers at Peking University predicted. Loosening from its current approach would lead to as many as 637,155 infections a day, the modeling showed — which would be the largest daily figure reported by any country since the pandemic began. The study also predicted a rise in China’s infections if it adopted the policies of the U.K., Israel, Spain or France. Separately, Goldman joined Morgan Stanley and JPMorgan in offering quarantine reimbursement for employees in the Asia-Pacific.
China on Saturday sent 27 warplanes close to Taiwan, the most since October, after a U.S. lawmaker defied Beijing’s demand that she abandon a trip to the island. The aircraft, including J-16 fighter jets, entered Taiwan’s southwest Air Defense Identification Zone, according to the Ministry of National Defense. Meanwhile, Iran’s chief nuclear negotiator said world powers must secure full, guaranteed and verifiable sanctions removal for Tehran when they resume talks on Monday aimed at reviving a landmark 2015 deal and ending a standoff with the U.S.
Thailand is targeting newly minted crypto millionaires to breathe life into its pandemic-battered tourism industry. Its tourism authority is working with the nation’s regulators and a local cryptocurrency exchange to pave the way for the acceptance of digital tokens for travel. Separately, social media platforms will be required to reveal the identities of anonymous online trolls or face making defamation payouts under new legislation proposed by Australian Prime Minister Scott Morrison. Meanwhile, is India banning crypto? Here’s a look at the hot-cold relationship between digital currencies and one of the fastest-growing markets for crypto trading.
What We’ve Been Reading
What’s caught our eye over the past 24 hours:
And finally, here’s what Tracy’s interested in today
What just happened in markets? News of omicron — a new strain of Covid with 32 mutations to its spike protein — prompted a massive selloff on Friday. The S&P 500 closed down 2.2% as investors rushed to incorporate the new variant into their expectations of economic growth. Obviously the big unknown is what exactly omicron mighty mean for vaccine efficacy, and here there remains a big question mark. But if we focus on the market reaction for a bit, two things jump out.
1. The first is that something weird was happening in markets even before Friday. While the S&P 500 was relatively flat from Monday to Wednesday (Thursday was closed for Thanksgiving), there was a lot going on under the surface. The CBOE's Volatility Index had already begun to nudge higher, opening the week at 18.20 and then jumping to as high as 20.96 on Wednesday. You can see the shift in the VIX Curve in the below chart, which also shows that the curve is now inverted. Stocks beloved by hedge funds and certain momentum investors also dropped precipitously early in the week, with lots of factor strategies seemingly taking hits.
2. Meanwhile, the spread between 5- and 30-year U.S. Treasuries jumped on Friday as investors priced-in a potentially slower rate of Fed interest rate hikes. But as Jon Turek over at Convexity Capital points out, all this uncertainty would appear to raise the chances of a central bank policy error (in which case, the curve should be flattening rather than steepening). “If anything, omicron actually raised the odds of a policy mistake as the price side of the mandate will make it much harder for the Fed to react to potential growth risks,” he says.
All of this is a long-winded way of saying that we don't know a lot about omicron just yet and markets may be reacting in a not particularly coherent way, or to something else entirely.
You can follow Tracy Alloway on Twitter at @tracyalloway.
— With assistance by Tracy Alloway
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