Markets respond to optimism amid Omicron variant gloom

Risk aversion and safe haven demand in global markets cooled after health officials expressed some optimism about the Omicron variant of Covid-19.

Following sharp falls on Wall Street on Friday, Australian shares dropped at the open but mostly recovered. Picture: NCA NewsWire/Jeremy Piper

Risk aversion and safe haven demand in global markets cooled after health officials expressed some optimism about the Omicron variant of Covid-19, which roiled markets last week after it was labelled a “variant of concern” by the World Health Organisation and prompted fresh travel restrictions.

Following sharp falls on Wall Street on Friday, Australian shares dropped at the open but mostly recovered and the Aussie dollar and bond yields stabilised as risk assets rose and safe havens fell after South African health officials said Omicron symptoms appeared mild.

After hitting a fresh two-month low of 7180.3 in early trading, the ASX 200 index closed down 40 points at 7239.8 on heavy volume worth $9.62bn.

“Covid-losers” and economically sensitive stocks were hardest hit, with Unibail Rodamco Westfield down 6.2 per cent, Woodside Petroleum down 1.7 per cent, Transurban down 1.4 per cent, Qantas down 2 per cent, NAB down 1.6 per cent, CBA down 1.1 per cent and CSL down 1.6 per cent.

But travel stocks found support with Qantas and Flight Centre mostly recovering from early falls.

Iron ore miners, tech stocks and Covid-winners stood out, with Fortescue metals up 2.4 per cent, Afterpay up 1.3 per cent, Domino’s Pizza up 4.1 per cent, Sonic Health Care up 2.6 per cent and Ansell up 2.1 per cent.

While briefly puncturing its 200-day moving average for the first time in 13 months, the Australian shares benchmark closed above that widely watched chart line, which was located at 7219.

The ASX 200 also formed a bullish “hammer” pattern on the Candlestick chart after approaching key chart support from the September 29 low at 7145.7, giving some hope of a pre-Christmas rally.

S&P 500 futures rose 1 per cent and Nasdaq 100 futures rose 1.3 per cent, pointing to a bounce on Wall Street.

Commodity prices also rebounded, with Singapore iron ore futures surging 7.8 per cent to $US103.30, and Comex copper up 1.2 per cent.

Brent crude futures rose 3.2 per cent to $US75.51 a barrel after diving 12 per cent on Friday.

Eurostoxx 50 futures rose 1.6 per cent and FTSE 100 futures rose 1.2 per cent.

Japan’s Nikkei 225 index dived 1.6 per cent after Japan slammed shut its border to foreigners.

South Korea’s KOSPI fell 0.9 per cent, Singapore’s Straits Times fell 1.1 per cent, the Hang Seng fell 0.8 per cent, but Taiwan’s TAIEX and China’s Shanghai Composite were little changed.

“Given it’s (Omicron) new and spreads easily some were very worried we’d see markets crushed on the fear that this will lead to lockdowns again across the globe,” said Bell Potter head of institutional sales and trading Richard Coppleson.

“But over the weekend we heard a lot more about it and from what we heard it is not a massive worry that it seemed on Friday.”

The WHO said there was no information to suggest symptoms associated with Omicron differ from those caused by other variants, and it is working with researchers to better understand the variant. But the new variant has a large number of mutations and poses an increased risk of reinfection compared to other variants, the WHO added.

Moderna said it should know about the ability of its vaccine to provide protection in the next couple of weeks. If a new vaccine is needed, it may be available in large quantities in early 2022.

On Monday, NSW recorded two further Omicron cases, bringing the nation’s total for the new variant to five.

Some analysts were sceptical of the durability of the rebound amid rising travel restrictions.

“The first move in early Asia on Monday is often the wrong one,” said OANDA Asia Pacific senior market analyst Jeffery Halley. “If that plays true, early optimism shown in the most illiquid time of the week for global markets could evaporate as the day goes on.”

With Europe already facing another Covid-19 wave and more restrictions, it was hard to see the continent “suddenly finding light at the end of the virus tunnel”.

Omicron, and all that it may mean for the economic outlook and asset prices, is still a “very open-ended issue”, according to IG market analyst Kyle Rodda.

“We aren’t anywhere near getting answers about the infectiousness of this strain, how severe it is, or whether it’s vaccine-resistant,” he said. “Until then, it’s likely to be the case that markets remain volatile. On balance, risk does seem skewed to the downside, even if the ASX200 has bounced.

While there was limited data on transmissibility, disease severity and vaccine efficacy in relation to the new variant, Macquarie analysts said there was scope for increased Covid-19 testing to benefit Sonic Healthcare and Healius in the short term. For Ansell they said the increased supply of healthcare personal protective equipment in the past 12 months would result in a less substantial benefit relative to prior variants.

“Similarly, we see an increased supply of ventilators globally as likely to provide modest impacts for ResMed,” they added. “The implications for preferred exposures with leverage to improving activity like Cochlear, CSL and Ramsay Health Care will depend on potential health implications and policy responses (such as) restrictions on movement and their duration.”

For healthcare companies with greater domestic exposure, such as Integral Diagnostics and those involved in IVF and aged care, they said the implications of the new variant may be less material given relatively high levels of vaccination in Australia and scope for policy responses.

Originally published as Markets respond to optimism amid Omicron variant gloom