Global equities and oil prices fell on Tuesday, while investors parked cash in high-grade government bonds, as trading was dominated by concerns over the Omicron coronavirus variant.
Wall Street’s broad-based S&P 500 share index, which had rallied on Monday to reflect a burst of optimism that market volatility sparked by Omicron would turn out to be a buying opportunity, opened 0.7 per cent lower.
Europe’s Stoxx 600 index was 0.5 per cent lower by mid-afternoon in London, following a choppy day of trading marked by worries about the new variant’s potential to evade vaccines. Hong Kong’s Hang Seng index and Tokyo’s Nikkei 225 both lost 1.6 per cent.
The moves came after Stéphane Bancel, chief executive of vaccine maker Moderna, used an interview with the Financial Times to predict that existing vaccines would be much less effective at tackling Omicron than earlier strains of coronavirus. He also warned that pharmaceutical companies would take months to manufacture new variant-specific jabs at scale.
Brent crude, the international oil benchmark, lost 3.7 per cent to $70.76 a barrel, around a three-month low.
Investors expect markets to remain volatile as information emerges about Omicron and the capacity of governments and existing vaccine programmes to contain it.
“I suspect that for the next few weeks markets are going to be all about Omicron,” said Patrick Spencer, vice-chair of equities at RW Baird.
“We’re all flying blind on the data,” he added, referring to scientists’ uncertainty over the impact of the new variant, which has an unusual genetic profile.
Wall Street’s Vix index, a measure of expected stock market volatility, rose to 25 on Tuesday from 23 the previous session — higher than its long-run average of 20.
US technology stocks fared better than others, with Wall Street’s Nasdaq Composite down 0.3 per cent in early trades, as investors reflected on previous coronavirus lockdowns boosting at-home entertainment and remote working.
The yield on the 10-year Treasury note dropped 0.1 percentage points to 1.44 per cent, reflecting a sharp rise in the price of the benchmark government debt instrument.
The dollar index, which measures the US currency against six others, fell 0.7 per cent as traders anticipated the Federal Reserve becoming reluctant to raise interest rates from record lows.
Although the US has not detected any Omicron cases so far, President Joe Biden has predicted it will emerge there.
“The magnitude of market reactions may still increase if we start seeing cases of this variant in the US,” said Tancredi Cordero, founder and chief executive of investment advisory boutique Kuros Associates.
“Markets came into this from a place of complacency,” he added, noting the S&P 500 and the Stoxx had hit record highs earlier this month despite high global inflation and the Fed announcing the start of reductions to its $120bn-a-month monetary stimulus.
In prepared remarks ahead of a congressional hearing later on Tuesday, Fed chair Jay Powell said rising Covid-19 cases and Omicron “pose downside risks to employment and economic activity and increased uncertainty for inflation”.
Oil prices, which dropped more than 10 per cent on Friday, would “not regain all the lost ground until after the end of this year”, said Tamas Varga of oil brokerage PVM.
“It will take time to evaluate the damage caused by the rise of the latest variant of the virus.”
Additional reporting by Neil Hume in London
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