European markets take a hit as UK reports first Omicron death
European markets were down on Monday evening as investors kept their eye on developments around the new COVID-19 Omicron variant and awaited meetings of central banks around the world, including those of the US Federal Reserve, the Bank of England, and the European Central Bank (ECB).
Any decisions made on monetary policies at these meetings will be major factors influencing global economic recovery and may impact volatility in stock markets.
British Airways owner IAG (IAG.L) and jet maker Rolls Royce (RR.L) were the FTSE 100’s top fallers as UK prime minister Boris Johnson said a “tidal wave” of Omicron infections threatens to overwhelm the country’s health system and announced at least one patient died in the UK after contracting the new variant of the coronavirus.
Major British airlines have urged the government to remove testing rules for vaccinated passengers and provide economic support for the sector, as new travel rules were imposed to limit the spread of the Omicron variant.
“London equities are poised to register new multi-month highs in the remainder of 2021, but Omicron-led volatility is likely to be a spoilsport as the UK government on Sunday raised the alert level following the sharp surge in the number of infections associated with the new variant,” Kunal Sawhney, CEO of Kalkine Group told Yahoo Finance UK.
The pound (GBP-USD) ticked 0.1% lower.
Meanwhile Sebastien Galy, senior macro strategist at Nordea Asset Management, said: “Global equity markets are rebounding on the back of the fear of missing out as fears quickly fade of the Omicron variant and a likely faster tapering by the Federal Reserve.”
“The ECB is also likely to turn gently but steadily more hawkish, hoping as it does that the Fed can slow down global demand enough for the ECB not to tighten too fast the screws of liquidity and giving the euro (EUR-USD) some limited support.”
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Eventually, European fixed income investors are going to be concerned about holding such long duration positions as the ECB likely moves away from negative interest rates next year, he said.
Across the pond, US stocks were lower at the European close.
This comes as US inflation “came in blazing hot on Friday”, said Naeem Aslam, chief market analyst at AvaTrade.
But Mark Haefele, chief investment officer, UBS Global Wealth Management, said: “We believe markets can continue take a higher inflation reading in their stride, though additional volatility remains a risk.”
He said the Federal Reserve remains eager to support growth and has not pivoted to aggressive inflation-fighting mode, in our view”, and that markets have already priced in faster tightening from the Fed, reducing the risk that investors will be taken by surprise.
He added that “inflation pressures are still set to decline next year, and we don’t expect the current elevated levels to harm consumer spending.”
Over in Asia markets were mixed. In Japan, the Nikkei (^N225) climbed 0.7% while the Hang Seng (^HSI) fell 0.2% in Hong Kong and the Shanghai Composite (000001.SS) gained 0.4%.