How is Omicron affecting financial markets?

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How is Omicron affecting financial markets?

 How is Omicron affecting financial markets?
Image source: ©Miflippo  | Megapixl.com

Highlights

  • On Sunday, the Dutch health authorities said that they had found 13 infected cases of Omicron.
  • The Dow Jones Industrial Average declined by 2.5% on Friday, recording its worst day in over a month.
  • The Tadawul All Share Index traded at 10,787.79 on Sunday, recording a decline of over 511.66 on the Saudi Arabian equity market.

Last Friday witnessed a huge sell-off on the global equity markets after the discovery of a new coronavirus variant called Omicron. In the latest update, the Dutch health authorities said that they had found 13 infected cases of Omicron among the 61 quarantined passengers who arrived from South Africa.

The new variant has already been detected in Belgium, Israel, Botswana, Australia, Hong Kong and the UK. Both Canada and the US have not reported any cases so far. The preliminary assessment of Omicron suggests a higher re-infection risk and has been categorised as a "variant of concern" by the World Health Organisation.

In a press conference, the South African Minister for Health, Joe Phaahla, had suggested that the new variant could be more transmissible than the previous ones . Several countries have already tightened the travel restrictions to prevent the spread of the new variant.

Read our latest coverage on Omicron: World in panic mode as Omicron arrives

Impact on the Financial markets

The equity and commodity markets were caught by surprise by the discovery of the new COVID variant at a time when the markets focused on the rising inflationary waves. The sell-off on the equity markets coincided with the oil price slump and the dip in the 10-year bond yield to less than 1.5%.

Also Read: Australia eases Covid 19 travel restrictions from Dec 1

The Dow Jones Industrial Average declined by 2.5% on Friday recording its worst day in over a month. Many of the European markets performed even worse. It is indeed a difficult question to foretell the impact of Omicron on the financial markets. Governments across the world have begun to take pre-emptive steps to contain the spread of the virus.

Financial Market

Image source: © Maxxyustas|Megapixl.com

The UK and many other European countries have already announced restrictions on international flights from South Africa. Canada has closed its border to the Southern African countries. While the stock market collapse in early 2020 is highly unlikely, the new variant may spark a new spike in infection rates. Last year, the US markets had dipped around 34% in a month with the onset of the coronavirus pandemic.

Must Read: US markets slip on new covid variant fears

Sentiment check: Tadawul dips over 5% on Sunday, Middle Eastern markets follow

Further, the impact of the new variant on the equity and commodity markets may be observed from the Middle Eastern financial markets, which recorded a substantial decline during the trading session on Sunday. Many of these middle eastern markets operate from Sunday to Thursday.

The Tadawul All Share Index traded at 10,787.79 on Sunday, recording a decline of over 511.66 on the Saudi Arabian equity market. A Similar trend was also observed in other equity markets in the region.

It is to be noted that the middle eastern economies are primarily oil-based and may have witnessed a larger than expected decline as the crude oil declined to 2-month lows on Friday. The other global markets may not face the same extent of downward pressure as these energy focused economies.

Bottom Line

On Friday, the huge sell-off in the financial markets may extend if the Omicron situation gets out of hand and the infection rates spike again. The vaccine manufacturers have begun to assess the efficacy of the existing vaccines against the new variant. It might be too early to say, and an intelligent investor should assess the potential situations before making any investment decisions.

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