Market Commentary

News of O micron 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 investment sentiment.

• The S&P 500 equity gauge closed 1.2% lower, erasing a gain of 1.9% earlier in the session. The decline followed a punishing session on Tuesday, which left the index almost 2% lower.

• Worries about how badly Omicron could hurt America’s economy and what the Federal Reserve might — or might not — do to control the damage saw the Dow Jones Industrial Average drop 1.3% after a 1.9% fall on Tuesday.

• Investors raced to hedge themselves as markets lurched lower, with trading volumes of put options — derivatives that offer protection if the price of a security declines — hitting the highest level in 17 months, according to Bloomberg data. The surge in purchases of puts accompanied the worst two-day sell-off in the S&P 500 since October 2020.

• The knock to stocks came on 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, Federal Reserve chair Jerome Powell reiterated a pivot toward vigilance over inflation. He also characterised the economy as “very strong” ahead of jobs data on Friday, that is expected to show American employers added more than half a million new hires last month. He doesn’t expect the winding down of asset purchases to disrupt markets because the Fed has “telegraphed it.”

• Markets remain in uncharted territory, and any vote of confidence in the economy would remain fragile as markets swing between optimism about economic growth, and reminders of the pandemic.

• Before US markets opened, investors were buying the dip. The Stoxx 600 index ended the European session up 1.7%, marking its strongest closing performance in almost seven months, with broad-based gains led by tech companies, oil producers and banks.

• Major markets across Asia bounced back too, following losses on Tuesday, led by energy and technology shares. Hong Kong’s Hang Seng rose 0.8% though sentiment remained clouded.

• In Japan, the Topix index climbed 0.4%. The Straits Times Index rose 1.9% to 3,098.51. The move was the biggest since rising 2% on 18 May.

• Volatility is buffeting markets as investors scrutinise whether the pandemic recovery can weather diminishing monetary policy support and potential risks from the Omicron virus variant. While central banks are scaling back ultra-loose settings, financial conditions remain favourable in key economies.