Stock markets: Asian shares slide as investors weigh major economic risks
Asian shares mostly fell on Tuesday as investors cautiously weighed the damage the novel coronavirus Omicron variant could do to the global economy.
South Korea’s Kospi led the drop in the region with a 2.4% drop, to 2,839.01.
Japan’s benchmark Nikkei 225 index lost its previous gains and fell 1.6% to 27,821.76, as pessimism over the Omicron variant established. 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 mostly flat at 3,563.89.
Yields on 10-year Treasuries fell back to 1.46% from 1.51% late Monday. It tends to rise and fall with expectations of the strength of the US economy and inflation.
Some analysts think a severe recession, like the one that happened last year, could be averted because more people have been vaccinated. But they also argue that a return to pre-pandemic levels of economic activity, particularly in the tourism sector, has been significantly delayed.
“Opinion could get a positive handover from Wall Street overnight, but with slower vaccination rates and more limited health care capacity in the region, uncertainty from variation The new Omicron appears to bring higher economic risks to the region at a time when Yeap Jun Rong, IG market strategist in Singapore, said of Omicron’s impact on Asia.
Immunization deployment rates vary between countries in the region, at around 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 bracing for more cases. It remains unclear how effective existing vaccines might be against the new variant.
On Wall Street, the S&P 500 rose 1.3% to 4,655.27, recovering more than half of Friday’s drop, its worst since February. Bond and crude oil yields also recovered a percentage of what they lost in the knee-jerk reaction of traders to running towards the safe and away from risky investments.
Nasdaq rose 1.9% to 15,782.83. The Russell 2000 index of small companies fell 0.2 percent to 2,241.98.
The Dow Jones Industrial Average oscillated between gains and losses, gaining 0.7% to 35,135.94.
The VIX, an index that measures investors’ anxiety about an impending drop in the S&P 500, has eased significantly. But it’s not all the way back to where it was before Omicron.
But while the market stabilizes on its own, Omicron poses additional risks to the global economy already facing crippling uncertainty. This variant seems to spread more easily, and countries around the world have erected barriers to travel in hopes of stopping it.
Travel bans, including decisions by Japan and Israel to ban foreign visitors, threaten to disrupt global business. Global supply chains already tightened by bottlenecks could be stretched further if the outbreak shuts down factories, ports and freight yards.
Shipping problems would risk pushing prices higher, adding to inflationary pressures. In response, the world’s central banks could raise interest rates and spur a recovery from last year’s brief but intense coronavirus recession.
Besides waiting for more clues as to how much economic damage Omicron will eventually cause, the market has some major milestones this week that could shift prices. The headline is likely to be Friday’s jobs report, where economists expect to see an increase in hiring by employers in November.
The US economic recovery lost significant momentum as the highly contagious delta variant emerged during the summer. Economic growth slowed to an annualized rate of 2.1% from July to September from 6.7% from April to June.
Still, more Americans are getting vaccinated, and the economy has shown resilience, picking up pace after decelerating over the summer.
Of course, the only way to know which scenario will eventually happen is to wait and see. And that uncertainty in the meantime could lead to more ups and downs for the stock market, which has surged more than 24% this year and set a recent record on Nov.
In energy trading, the price of US benchmark crude fell 3% or $2.10 to $67.85 a barrel. It rose $1.80 to $69.95 a barrel on Monday. Brent crude, the international standard, fell $2.52 to $70.70 a barrel.
In currency trading, the US dollar fell from 113.56 yen to 113.09 Japanese yen. The euro rose to $1.1326 from $1.1291.