DWS KGaA Investor Relations Media Career Belgium Insights Capabilities Solutions Service Profile Search Home » Insights » CIO View » New Covid-19 variant Omicron Nov 29, 2021 Global New Covid-19 variant Omicron So far uncertainty persists 6 min to read Markets reacted violently to the news on Friday with many assets showing their worst one-day performance of the year. Equity markets in Europe were hit particularly hard, with the down 3.7%, while the S&P 500 lost 2.3% in trading that was light because of the Thanksgiving holiday. Work-from-home stocks gained, while travel, leisure, energy and finance were among the hardest hit sectors. Oil took a huge hit, its worst since March 2020, with losing more than 10% and even more, to trade below US-Dollar 70 per barrel. Sovereign bond rates dropped, with 10-year down by 9 basis points and 10-year Treasuries by 16 basis points. In foreign exchange, traditional safe havens such as the yen and Swiss franc gained. On Monday morning, European equity markets recovered only a small part of their losses. Assessing the appropriateness of markets’ initial reaction is anything but easy as so little is known about the new variant at this stage. The reaction might be seen in two ways. It might be seen as an isolated response, a judgment of it’s the potential economic impact of this new development. Or it could be seen as an overdue wake-up call for investors who have become overly comfortable with Covid despite the worse than expected surge in new cases, especially in Europe, and various types of new lockdowns. Instead investors had appeared to be concentrating on the widely expected year-end rally, with equities as the hard-to-beat asset class in this environment – and and monetary were the main risks, not Covid. Thinking along those lines has taken investors far: the year-to-date performance for the MSCI AC World is a rise of 20%, which puts Friday’s market reaction into perspective. Fixed Income & Currencies: For the fixed income markets the uncertainty about Omicron implies higher volatility, coupled most likely with a flattening of rate curves at the longer end (as seen on Friday). The rationale behind this flattening would be twofold. Firstly, an increasing likelihood of widespread shutdowns and obstacles to travel and transport might mean that supply-side restrictions persist longer, raising the likelihood of higher inflation and lower growth. While energy prices fell quite dramatically on Friday, we would argue that inflationary pressures are nevertheless sufficiently high for central banks, who have leaned towards hawkishness in recent weeks, not to engage in a dovish turnaround as yet. Secondly, the bid for safety would imply more short-term demand for US Treasuries and Bunds, thereby also contributing to the flattening. Sense and nonsense in pandemic times How to think through both the long- and the short-term implications of Covid-19 for markets, the economy and forecasting: What we have learned so far. Read more Equities: For equities, too, much will depend on the incoming Omicron data over the next week. Unsurprisingly any negative news that will further restrict travel and impose new lockdowns will hit reopening sectors, such as travel, leisure, energy and high street retail most, while benefiting stay-at-home sectors. The possibility that central banks might become less hawkish in coming months would, however, counterbalance the negative market reactions. But negativity would further increase should the current vaccines prove less effective to this (or any other) new variant. Alternatives: Oil's Monday recovery is slight compared to the battering it took on Friday. Oil markets had already been rattled by the multiple countries planning to tap strategic reserves, in response to U.S. prompting. OPEC has just postponed its technical meeting from today, Monday, to Wednesday, to be able to better assess the new situation. We still expect oil supply to be flexible enough in 2022 to keep oil prices range bound around current levels, with a slight tendency towards price decreases. Download PDF Read more Dec 03, 2021 Global Investment Traffic Lights | Quarterly Edition Omicron and inflation have hit markets. But they probably won’t change the economic outlook much. We con-tinue to believe a good year for the markets lies ahead. Dec 03, 2021 CIO VIEW QUARTERLY NEWS- LETTER Quick Access DWS KGaA CIO View Facts & Figures Slavery and Human Trafficking Statement (PDF) Engagement Policy (PDF) Information on sustainability Copyright © 2021 DWS DWS Investment GmbH as of 11/29/21; 086868_1.0 (11/2021) (11/25) Cookies Policy We use cookies and similar technologies that are essential to operate our websites. With your consent, we will use cookies for performance analysis of our websites. 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