US equities and oil prices saw a sharp dip on Wednesday, with worries about the Omicron Covid-19 and hawkish comments from the Federal Reserve chair clouded the financial markets globally.
S&P 500 equity gauge fell 1.2% in New York. The fall marked the benchmark’s largest intraday swing since March and what followed was a punishing session on Tuesday, leaving the index around 2% lower.
The tech-focused Nasdaq Composite slipped 1.8%, increasing losses prior to the close. Investors hurried to protect themselves with trading volumes of put options with the market dipping wildly. According to Bloomberg data, the derivatives that protect if the security drops hit the highest level in 17 months. S&P 500 saw the worst two-day sell-off since October 2020, and the purchases of puts increased incredibly.
Followed by the sell-off on Wall Street, markets were mixed in Asia.
- Japan’s benchmark Topix index declined 0.4%
- Hong Kong’s Hang Seng increased 0.3%
- Brent crude up 1% to $69.51 a barrel in Asia trading
The international benchmark rose as the investors expected the result of the Opec meeting of the producer group and its allies. The stocks shook, followed by the news of the new variant case in a vaccinated person in California and the surging number of covid-19 cases in South Africa.
To top the Omicron’s fear came in Jay Powell’s comments. The Fed chair told Congress that there is a risk of persistently high inflation. He also supported a quicker reduction of stimulus measures the US central bank levied with the onset of the pandemic. The stimulus has since been central to the stock market’s recovery since the start of 2020. Powell also referred to the economy to be very strong with jobs data that is expected to show more than a million new hires by American employers in the last month.
Aneeka Gupta, research director at ETF provider WisdomTree, said that markets are obviously concerned about the rise of Omicron, but it is an uncharted territory, where everyone is unaware. Powell’s weigh-in on the economy helped to get back some risk appetite.
Kasper Elmgreen, head of equities at Amundi, the European fund manager, warned that the vote of confidence is still fragile since markets are swinging between optimism about economic boost and the fact that pandemic continues to extend its stay. Wednesday saw an increase in volatility of market measures, with the Cboe’s Vix index surging higher than 30 for the first time since March, crossing the average of 20. It also poses as a signal of the raging moves in markets. Markets can stay in this tense state for some time since there is no direction, added Elmgreen.
Moderna’s chief executive said that existing jabs would not be as effective at beating the new variants as they were for the earlier ones. However, according to the predictions by the University of Oxford and BioNTech, the existing vaccines will continue to shield against severe diseases.
The government debt markets saw,
- The benchmark 10-year US Treasury note yield drop to 1.42%, 0.02% points down.
- The 30-year yield (moves with growth and inflation expectations) reach its lowest since January to 1.75 percent later in the day.
- The two-year Treasury yield (tracks interest rate expectations) drop 0.01%, points to 0.56% that tracks interest rate expectations.
- The Stoxx 600 index go up 1.7%, the strongest closing performance in nearly seven months.