Omicron spreads, but markets hope that the effects will be mild.
LONDON, Nov 29, Reuters -- A semblance of calm returned to world markets on Monday as investors waited for more information to assess the severity of the Omicron coronaviruses variant on the world economy, allowing battered stocks and oil prices to rebound.
European shares rose over 1%, US stock futures pointed to a firm Wall Street open, oil prices bounced more than $3 and safe-haven bonds lost ground as markets latched onto hopes that the new variant of concern would prove milder than initially feared.
A sell-off on Friday wiped out nearly $2 trillion off the value of global stocks as countries slapped new curbs for fear it might resist vaccines, and upend a nascent economic re-opening after a two-year global pandemic.
Omicron has been found as far afield as Canada and Australia. The highly mutated variant poses a very high risk of infection surges, according to the World Health Organisation.
The investors were comforted by signs that its impact may not be as grave as feared. A top infectious disease expert said existing COVID-19 vaccines are probably effective at preventing severe disease and hospitalisation in Southern Africa, where the new strain was detected last week.
A South African doctor who was one of the first to suspect a new strain said on Sunday patients seem to have mild symptoms, though experts said it was too early to say how severe the illness will be.
"We're still in the dark and need more data, but things do seem a bit more hopeful than they were on Friday," said Mark Dowding, BlueBay Asset Management CIO.
S&P 500 futures added 0.85% and Nasdaq futures 1%. Both the indexes suffered their sharpest fall in months on Friday with travel and airline stocks hit hard.
Europe's STOXX 600 index rallied 1%, after it suffered its biggest one-day fall since June 2020. MSCI's broadest index of Asia-Pacific shares outside Japan fell by 0.4%, but found support ahead of its 2021 low. Japan's blue-chip Nikkei fell by 1.6% as the country banned foreigners from the Omicron strain.
On Friday, after having plunged more than 10% in their biggest one-day drop since April 2020, oil prices rallied more than 4%. U.S. crude oil futures rose 4.9% to $71.46 and Brent crude oil futures stood at around $76 a barrel.
The oil price rebounded after speculation that OPEC and its allies may pause an output increase in response to the spread of Omicron.
The European Central Bank policymakers tried to reassure investors that they had learned to deal with the new coronaviruses and that the euro zone had learned to cope with successive waves of the epidemic, as a result of the new coronaviruses variant.
This encouraged a move out of safe-haven bond markets, which had rallied on Friday as investors priced in the risk of a slower start to rate hikes from the U.S. Federal Reserve and less tightening by some other central banks.
The two-year Treasury yields edged up to 0.54% after falling 14 basis points on Friday, the biggest drop since March last year. The first rate rose by a month or so by the Fed fund futures.
European sovereign bond yields went up with the latest inflation numbers, highlighting the challenges ahead for the ECB.
Regional data from several states suggested on Monday that German inflation is poised to surpass the 5% threshold in November for the first time in nearly three decades.
The dollar was steady at around 113.45 yen on Monday after falling 1.7% on Friday. After Friday's 0.7% drop, the dollar index held at 96.18.
The euro was struggling again at $1.1291, after its rally from $1.1203 late last week.
Agn s Belaisch, chief strategist Europe at Barings Investment Institute, said that as Fed hikes get priced out and the dollar weakens, currencies such as the euro and yen should benefit.
She said that safe assets will keep a bid and duration will be a good place to position again. After a good run, careful investors would want to take some profit in equities - the reopening of trade will come later, hopefully with a revenge. Turkey's lira fell more than 4%, nearing recent record lows against the dollar, after President Tayyip Erdogan said he will never defend interest rate hikes or compromise on the issue.