The global Covid vaccine industry has been has been preparing an ‘Omicron’ event for many months and this is the first major test of those preparations. Early indications are that this variation is not as lethal as previous ones so it’s an excellent one to test the systems and the adaptability of the vaccines.
Not surprisingly AstraZeneca and Oxford University are already well advanced and have developed a vaccine platform to respond quickly to new variants. They have also developed an antibody cocktail that can be used both to prevent and to treat Covid-19.
We will also discover the level of preparation of US vaccine makers like Pfizer, Johnson & Johnson and Moderna, plus China’s Sinovac.
Researchers will learn in the coming days whether their current vaccines can ward off the variant or successfully limit symptoms.
I suspect the biggest casually of Omicron will be overseas travel. Australians were seriously considering resuming their overseas travel adventures and the rash of country by country travel bans and other measures will delay those considerations. That’s good news for the local economy but we have our own restrictions on people coming here.
It’s possible Australia will be hit again with various state bans but they are unlikely to be severe given the economic impacts and likely community reaction.
As often happens in events like Omicron it is the bond market where the action is at its most frenetic. The world institutions have correctly isolated that higher inflation is ahead so they lightened their bond portfolios and over invested in shares.
Early in the US week of thanksgiving, the institutions were joyous because their strategy was working. Bond prices were falling and yields rising hitting 1.68 per cent for the US 10 year bond. In the mix was the Amazon Effect and the work of Profitero, a US data analytics company that tracks the prices of more that 20,000 popular items across several large online retailers.
Amazon’s prices on those items grew 7.5 per cent in October, compared with the same month a year ago. That is likely to trigger the so called Amazon Effect, whereby rivals tend to follow Amazon’s lead.
US consumer prices rose 6.2 per cent in October from last year which was the largest annual inflation increase in 30 years, boosted by soaring energy prices and severe supply chain backlogs. It was clear that instead of receding, the higher consumer price trend was accelerating which would have only one outcome – higher market interest rates and lower bond prices.
Amazon announced it would spend an extra $US4bn attracting seasonal workers into their operation to cover labour shortages. To entice those seasonal workers Amazon was prepared to increase wages so further locking in the higher consumer prices.
In Australia there is a fascinating variation on what is happening in US. For Australian capital city distribution, Amazon uses the Uber system of contract distribution, while most of the other retailers use the traditional transport networks that are highly unionised.
The unions are pressing for higher wages and productivity reducing measures and have gone on strike in some sites delaying already late Christmas parcels. The unions are in grave danger of creating a 2021 Amazon Christmas impacting retailers who embrace transport networks that use conventional labour employment systems.
But they might be lucky because the shortages of labour in Australia are similar to the US and Amazon maybe be forced to boost remuneration in its contracts. It is another part of the higher inflation/higher market interest rates story sweeping the US and Australia.
Suddenly enter Omicron and at least on Friday on Wall Street it changed the game. Fearing an economic downturn, traders raced for the security US bonds and that sent the yield plummeting to 1.48 per cent – below the 1.5 per cent benchmark level. The rise in bond prices was accelerated by the fact that many had shorted bonds and were desperately trying to buy them back to limit their losses.
And as the bond prices rose so the inflation hedge assets like growth shares and commodities fell sharply. Australia will duplicate the US market trends.
But we now know that while travel restrictions can delay the spread of the virus and can be used very effectively in certain areas, for most of the world it is simply a delaying tactic. Australia’s counter to the virus is high rates of vaccination and we are in a very fortunate position.
Our vaccine regulators will need to be in very close touch to determine which vaccine makers have instituted the best system for countering a variant, remembering that there are more to come.
I am in no position to judge which of the vaccine makers will perform best in this test, but do not write off AstraZeneca.
The last full week of November will be remembered for two events – Omicron and the US bond market drama linked to what is happening at Amazon.