TOKYO (NWN) – Asian stocks fell mostly on Tuesday as investors cautiously weighed how much damage the new Omicron coronavirus pandemic could have on the global economy.
South Korea’s Kospi led the regional loss at 2,839.01, down 2.4%.
Japan’s benchmark Nikkei 225 lost earlier gains and fell 1.6% to 27,821.76, as pessimism set in on the Omicron version. Australia’s S&P/ASX 200 rose 0.2% to 7,256.00. Hong Kong’s Hang Seng fell 1.7% to 23,439.91, while the Shanghai Composite was almost flat at 3,563.89.
The yield on the 10-year Treasury fell to 1.46% from 1.51% late Monday. It tends to rise and fall in line with expectations for the strength and inflation of the US economy.
Some analysts believe that a severe economic slowdown, as happened last year, could be averted as many people have been vaccinated. But they also think that the return to pre-pandemic levels of economic activity, especially in tourism, has been dramatically delayed.
“Emotions may ride on a positive handover from Wall Street overnight, but with slower vaccination rates and more limited health capacity in the region, the uncertainty from the new Omicron version could bring higher economic risks to the region at a time where it will reopen.” We are moving towards,” said Yep Jun Rong, market strategist at IG in Singapore, of Omicron’s impact on Asia.
Vaccination rollout rates in the region vary by country, with approximately 77% in Japan, 50% in Vietnam, and 35% in Indonesia. In Asia, the Omicron variant has been detected in Australia, Japan and Hong Kong and the region is poised for more cases. It is not clear how effective existing vaccines might be against the new version.
On Wall Street, the S&P 500 rose 1.3% to 4,655.27, recovering more than half of its decline on Friday, its worst since February. Bond yields and crude oil also recovered part of what they lost in a knee-jerk reaction from traders turning to the safety and running away from risky investments.
The Nasdaq closed 1.9% higher at 15,782.83. The Russell 2000 Index of Small Companies slipped 0.2% to 2,241.98.
The Dow Jones Industrial Average rose 0.7% to 35,135.94 amid gains and losses.
The VIX, an index that measures how concerned investors are about impending drops for the S&P 500, just got a lot easier. But it’s not back to where it was before Omicron.
But when markets stabilize themselves, O’Micron adds more risk to a global economy already reeling from paralyzed uncertainty. The variant appears to spread more easily, and countries around the world have erected barriers to travel in the hope of preventing it.
Travel restrictions, including Japan and Israel’s decisions to restrict foreign visitors, threaten to disrupt global trade. Global supply chains are already beset with bottlenecks and could become more complicated if outbreaks close factories, ports and freight yards.
Shipping problems would risk price increases, adding to inflationary pressures. In response, the world’s central banks may raise interest rates and take risks to recover from last year’s brief but sharp coronavirus recession.
In addition to waiting for more clues on how much economic damage Omicron will ultimately do, the market has several big milestones this week that could swing prices. The headliner is probably Friday’s jobs report, where economists expect to see an uptick in hiring by employers through November.
The US economic recovery lost significant momentum when the highly contagious delta version hit in the summer. Economic growth slowed to an annual rate of 2.1% from July to September, to 6.7% from April to June.
Still, more Americans are now vaccinated, and the economy has shown resilience, gaining momentum after the summer recession.
Of course, the only way to know which scenario will eventually occur is to wait to see it. And the uncertainty in the meantime could spell further volatility for the stock market, which has gained more than 24% this year and most recently hit a record low on November 18.
Benchmark US crude fell 3%, or $2.10, to $67.85 a barrel in energy trading. On Monday, it rose $1.80 to $69.95 a barrel. International benchmark Brent crude fell by $2.52 to $70.70 a barrel.
In currency trading, the US dollar slipped from 113.56 yen to 113.09 Japanese yen. The euro rose from $1.1291 to $1.1326.