The Omicron COVID-19 variant has put a scare through markets, with the ASX expected to take a dive today.
Travel stocks will no doubt take a hit with border restrictions coming into force, while oil prices have dropped 13 cents.
US stocks also took their biggest tumble in a year in Friday’s trading.
No doubt, the year will end with a great deal of volatility.
Here’s what we saw:
- The Aussie dollar fell from highs near US71.53 cents to lows near US71.12 cents and was near US71.15 cents at the US close.
- Global oil prices took a US$10 a barrel dive on Friday, the largest one-day drop since April 2020. Fear of lockdowns and travel restrictions as the world works out Omicron have threatened a global recovery in crude demand.
- The Brent crude price slid US$9.50 or 11.6% to US$72.72 a barrel.
- The US Nymex crude price dropped US$10.24 or 13.1% to US$68.15 a barrel.
- For the week, Brent lost US$6.17 or 7.8% and the Nymex dipped by US$7.95 or 10.4%.
- Base metal prices fell by up to 3.8% on Friday with nickel down by the most as the emergence of Omicron raised concerns about the outlook for global commodities demand.
- Over the week lead rose by 3.9% but aluminium was down 2.3%.
- The gold futures price rose by US$1.20 or 0.1% to US$1,785.50 an ounce.
- Spot gold was trading near US$1,792 an ounce at the US close.
- Over the week gold slid US$66.10 or 3.6%.
- Iron ore dipped by US$3.45 or 3.4% to US$96.65 a tonne.
- For the week iron ore rose by US$5.35 or 5.9%.
Australian markets
There’s a little bit of déjà vu or ‘here we go again’ about the start of trading this week.
As Joseph Palmer & Sons director Alex Moffatt says, “News that a new, heavily mutated strain of the coronavirus has been labelled “of concern” by the World Health Organisation (WHO) sent prices of stocks and bonds tumbling around the globe on Friday.”
That sentiment is likely to stock around this week as the world weighs up its combat options.
“Just as in March 2020, it is the fear of the unknown which is driving prices and the move away from risk assets,” Moffatt says.
“In addition to bonds, gold, the Swiss Franc and the Japanese Yen are benefitting. Having spent the last few months fretting about inflation and what central banks may do to combat its rise, investors put all that to one side to focus on safety in the market in the face of an unknown.
“Without wishing to appear cavalier I believe this presents yet another opportunity for investors with cash to put some of it to work. Central banks will now likely hold back on any changes to monetary policy as they will not wish to appear insensitive to a potentially major civil problem and governments will take ages to do anything at all to stop the spread of the virus, notwithstanding what they have learned over the past two years.
“Therefore, investors with cash have the opportunity to pick up some good businesses at prices which are comparatively attractive given where they were just a few days ago. In addition, interest rates are still close to zero and the alternatives for investors in such an environment have not really altered. Even the gloss on the cryptocurrencies appears to have tarnished somewhat.”
Last week’s best and worst sectors
The best-performing sectors were Materials up over 3%, followed by Utilities over 2% higher and Energy up over 1%. The worst-performing sectors were Information Technology which fell 3%, followed by Financials down over 1% and Communication Services down under 1%.
The best performers in the S&P/ASX top 100 stocks included Fortescue Metals Group (ASX:FMG) Limited up over 15%, Mineral Resources Limited (ASX:MIN) up over 10% and Rio Tinto Limited up over 7%. The worst-performing stocks were Evolution Mining Ltd (ASX:EVN) down over 8% and AMP Ltd and Wisetech Global Ltd down over 7%.
What's next?
While Omicron is likely to have a bearing, the market was likely to be volatile anyway.
“In the past 26 trading days, the Australian market has fallen between 1.5 and 1.9% on three occasions and risen over 2% on two occasions. As such, it is obvious that the market is struggling to find a direction and is displaying a real lack of confidence with neither the bulls nor the bears wanting to commit to a move,” Wealth Within analyst and founder Dale Gillham says.
“Technically last week was a down week given that on Monday the All Ordinaries Index traded below the low of the prior week. Right now, it would be good if the market moved down for one or two weeks, as this means it will be stronger in 2022.
“As such, I would not be surprised to see the All Ordinaries Index fall away up to 5% over the next few weeks before rising up into February. Despite the uncertainty in the market continuing, right now it would pay to be cautious before buying any stocks, as you may be buying just before they fall away.”
A final word on Omicron
Right now, it looks as though it is business as usual. The Prime Minister is meeting with state leaders today to discuss direction, but for now Victoria and NSW remain open, with the other states not budging too much on plans already in place.
The decision to allow migrant workers and international students into the country may be reviewed.
“We will consider that in the light of all the new information and what we have to do to deal with this,” the PM told brekky show Sunrise.
“This isn't the first of the new strains we have seen, and the evidence to date does not suggest it is a more severe form of the virus and issues of transmissibility and impact on the vaccine, there is no evidence yet to suggest there are issues there."
Queensland may keep its borders shut for longer.
NSW Premier Dominic Perrottet said he would take a cautionary approach and work closely with the states and federal government.
“We have worked very closely with the Victorian premier Dan Andrews,” he said
“We don’t just need to learn to live alongside COVID-19, we need to learn to live alongside variants as well and I’m confident based on our high vaccination rates we will be able to continue to open up safely.”
“Our number one priority is to keep people safe, it's exactly the goal of the NSW Government.”
Australian indices (at time of writing)
- ASX 200 fell 1.73% to 7,279.30.
- ASX24 futures dipped 1.5% to 7,166.
- S&P/ASX Small Ordinaries fell 2.23% to 3,446.20.
- All Ordinaries fell 1.77% to 7,599.90.
US markets
It was a bloodbath in US markets on Friday.
The new Omicron variant is causing havoc across global markets as Dow Jones recorded its worst day in 12 months on Friday.
The Dow Jones had its worst day since October 28, 2020. The S&P 500 saw its biggest drop since February 25 and the Nasdaq fell 2.2%.
As you’d expect, travel-related stocks were hit hardest: Royal Caribbean Cruises took a 13.2% dive, United Airlines dropped 9.6% and Boeing fell 5.4%.
The winners were COVID-19 vaccine makers with Moderna surging 20.6% and Pfizer gaining 6.1%.
Fed chairman Jerome Powell and US Treasury secretary Janet Yellen will go before Congress on November 30 to discuss the US Government’s COVID-19 response, while President Joe Biden imposed fresh travel restrictions on nations in southern Africa.
Netflix also gained 1.1%.
According to Wedbush Securities, the tech sector could be one to watch in 2022.
“Over the past 18 months our bullish tech playbook has been unchanged and any time we get 10-year yield spikes, variant fears or second wave worries we view this as a buying opportunity to own the tech secular winners,” Wedbush analyst Dan Ives said.
US indices
- Dow Jones was down 2.5% to 34,899.34.
- S&P 500 fell 2.3% to 4,594.62.
- Nasdaq fell 2.2% to 15,491.66.
European markets
Europe was also hit hard, with stocks plummeting on Friday.
The benchmark STOXX 600 index delivered its worst session since June 2020.
Travel and leisure plummeted 8.8% - its worst day since the COVID-19 shock sell-off in March 2020.
The UK has suspended flights from six countries in southern Africa on virus concerns.
Eurozone money markets scaled back bets of a rate hike from the European Central Bank next year, with odds of a 10 basis point rate hike in December 2022 almost halved from 100% earlier this week.
Eurozone government bond yields also dropped, putting pressure on European bank stocks which lost 6.9%.
In London trade, shares in Rio Tinto fell by 2.7% and BHP shares shed 2.4%.
European indices
- STOXX 600 fell 3.67% to 464.05.
- German Dax dived 4.2% to 16,257.04.
- UK FTSE fell 3.6% to 7,044.03.