Stocks slide as news of Omicron variant in US prompts late sell-off

Stocks slide as news of Omicron variant in US prompts late sell-off

US equities and oil prices slid on Wednesday as concerns about the Omicron coronavirus variant and hawkish comments from the Federal Reserve chair weighed on global financial markets.

Wall Street’s S&P 500 equity gauge closed 1.2 per cent lower in New York, erasing a gain of 1.9 per cent earlier in the session. The decline marked the benchmark’s largest intraday swing since March and followed a punishing session on Tuesday, which left the index almost 2 per cent lower.

The technology-focused Nasdaq slipped 1.8 per cent, with losses accelerating just before the close.

Stocks were hit by news that the first Omicron variant had been identified in a vaccinated person in California, as well as figures that showed another surge of coronavirus cases in South Africa.

On top of Omicron fears, investors continued to weigh comments from Jay Powell, Fed chair, who this week told Congress that the risk of higher inflation had increased. He has also signalled his support for a quicker reduction of stimulus measures the US central bank had put in place at the onset of the pandemic. That stimulus has been central to the stock market’s recovery since early 2020.

But Powell also characterised the economy as “very strong” ahead of jobs data on Friday that economists polled by Reuters expect to show American employers added more than half a million new hires last month.

“Markets obviously got quite concerned about the emergence of Omicron but we remain in uncharted territory, no one really knows,” said Aneeka Gupta, research director at ETF provider WisdomTree. “Powell’s vote of confidence in the economy has helped to bring back some risk appetite.”

Kasper Elmgreen, head of equities at the European fund manager Amundi, warned that such confidence would remain fragile as markets swung between optimism about economic growth and the “humbling reminder that the pandemic remains with us”.

Market measures of volatility continued to rise on Wednesday, with the Cboe’s Vix index rising above 30 for the first time since March. That is above its long-run average of 20 and a signal of the choppy moves in markets.

Markets, Elmgreen added, “could stay in this tug of war for some time, as really there is no clear direction”.

The chief executive of the vaccine maker Moderna predicted in an interview with the Financial Times on Tuesday that existing jabs would be much less effective at tackling Omicron than earlier strains of coronavirus. Later, the University of Oxford and BioNTech predicted that currently available vaccines would continue to prevent severe disease.

In government debt markets, the yield on the benchmark 10-year US Treasury note declined 0.02 percentage points on the day to 1.42 per cent. The 30-year yield, which moves with growth and inflation expectations, late in the day fell to 1.75 per cent, its lowest level since January.

The two-year Treasury yield, which closely tracks interest rate expectations fell 0.01 percentage point to 0.56 per cent.

Brent crude, the international benchmark, settled down 0.5 per cent at $68.87 a barrel, after falling almost 4 per cent on Tuesday, as investors anticipated the result of the Opec+ meeting of the producer group and its allies this week.

The Stoxx 600 index ended the European session up 1.7 per cent, marking its strongest closing performance in almost seven months, with broad-based gains on Wednesday led by tech companies, oil producers and banks among other sectors.

In Asian markets, Hong Kong’s Hang Seng rose 0.8 per cent while Japan’s Topix index climbed 0.4 per cent.

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