Stocks, Futures Hit by Vaccine Worry as Bonds Jump: Markets Wrap

(Bloomberg) — Fresh concerns about the efficacy of existing vaccines against the omicron coronavirus strain pushed markets back into risk-off mode on Tuesday, with stocks in Europe dropping alongside U.S equity futures. Bonds and the yen gained as investors sought havens.

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The Stoxx Europe 600 index fell more than 1% at the open, wiping out Monday’s advance, with energy, retail and travel stocks leading declines. S&P 500 contracts fell about 1% and the U.S. 10-year Treasury yield sank below the levels hit Friday, when omicron-induced fears for global economic reopening first roiled markets. Crude oil tumbled, commodity-linked currencies were in the red, and gold climbed.

Moderna Inc.’s Chief Executive Officer Stephane Bancel told the Financial Times that existing vaccines will be less effective at tackling omicron and it may take months before variant-specific jabs are available at scale.

Federal Reserve Chair Jerome Powell said omicron poses risks to both sides of the central bank’s mandate for stable prices and maximum employment. That stoked speculation the strain could delay interest-rate hikes. Meanwhile, euro-area inflation for November is set to reach its highest on record, clouding the European Central Bank’s policy path.

Scientists are still evaluating the severity of omicron amid anecdotal reports of mild cases, with many questions still to be answered. Travel bans have already hit international links and the variant could add to inflation pressures if it exacerbates supply-chain disruptions.

“Information on the omicron variant is sketchy, how drastic its symptoms will be and how easily it can spread is also unknown, as is the effectiveness of current vaccines,” said Kelvin Wong, an analyst at CMC Markets (Singapore) Pte. “I expect more downside risk for the next couple of weeks unless there’s more clarity on the omicron strain.”

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Powell, in prepared testimony released Monday, said the “recent rise in Covid-19 cases and the emergence of the omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation.”

He didn’t discuss specific monetary policy actions or the possibility of changing the pace of the tapering of Fed bond purchases — a key issue that other officials have flagged in recent remarks. The Fed chair will be closely watched when he appears before a Senate committee later Tuesday together with treasury Secretary Janet Yellen.

The vaccine doubts overshadowed positive data from China, which showed factory sentiment improved in November as the impact of a power crunch subsided and inflation pressures eased. Chinese shares were comparatively resilient and the offshore yuan rose.

Elsewhere, emerging-market stocks declined for a third day, with the benchmark index hitting a one-year low. Risk aversion also buffeted cryptocurrencies, with Bitcoin dropping toward $56,000.

Some key events to watch this week:

  • Federal Reserve Chair Jerome Powell will appear at a Senate Banking Committee hearing alongside Treasury Secretary Janet Yellen on Tuesday. They’re set to speak again on the following day at the House Financial Services Committee.

  • Euro zone CPI, Tuesday

  • U.S. Conference Board consumer confidence, Tuesday

  • China Caixin manufacturing PMI, Wednesday

  • Euro zone manufacturing PMI, Wednesday

  • U.S. construction spending, ISM Manufacturing, Fed’s Beige Book on Wednesday

  • OPEC, allies may re-evaluate plans for reviving oil supplies, Thursday

  • U.S. initial jobless claims, Thursday

  • U.S. jobs report, factory orders, durable goods on Friday

For more market analysis, read our MLIV blog.

Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 fell 1% as of 8:08 a.m. London time

  • Futures on the S&P 500 fell 0.9%

  • Futures on the Nasdaq 100 fell 0.4%

  • Futures on the Dow Jones Industrial Average fell 1.2%

  • The MSCI Asia Pacific Index fell 0.6%

  • The MSCI Emerging Markets Index fell 0.4%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.2%

  • The euro rose 0.4% to $1.1338

  • The Japanese yen rose 0.3% to 113.14 per dollar

  • The offshore yuan rose 0.2% to 6.3742 per dollar

  • The British pound rose 0.2% to $1.3336

Bonds

  • The yield on 10-year Treasuries declined five basis points to 1.45%

  • Germany’s 10-year yield declined two basis points to -0.33%

  • Britain’s 10-year yield declined four basis points to 0.82%

Commodities

  • Brent crude fell 2.7% to $71.46 a barrel

  • Spot gold rose 0.5% to $1,793.90 an ounce

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