New Omicron strain could slow global economic recovery

COVID-19 is becoming a major topic for investors once again amid fears that a new virus strain Omicron could slow the global economic recovery after a nearly two-year pandemic. Until Friday, investors were optimistic about the strength of the global economic recovery amid widespread availability of vaccines and advances in treatment, despite concerns about steadily rising inflation. But late last week, global stock markets lost $3.3 trillion in market value as investors faced a question of whether they were too early to discount a possible pandemic resolution due to the emergence of a new strain of coronavirus in South Africa. Although there is still little about a new version, scientists said it has a large number of mutations that could make it resistant to vaccines and more easily transmissible than the Delta variant. But there is positive news. On Sunday, the South African Medical Association chairman said the new variant of the Omicron coronavirus, though more contagious, causes mild illness without obvious symptoms.

Gold increased more than 1% on Friday, rising above the $1,800 an ounce level, as investors began looking for safer assets after discovering a new strain of the coronavirus. But let’s not forget that gold and silver prices are inversely correlated with the dynamics of US Treasury yields, which are trending upward amid the QE reduction. Thus, fundamentally, the precious metals prices will have a negative dynamic until the middle of the next year.

Oil prices fell $10 a barrel on Friday, the biggest one-day drop since April 2020, as news of the new Omicron option caused many countries to rush to limit travel, which strengthened the concerns that in the first quarter of next year there may be an excess supply. Also, traders shouldn’t forget about the release of strategic reserves by the US and several other consuming countries (Japan, South Korea, India, China, and others). Crude oil prices fell 13.1% on Friday, the 9th biggest one-day decline on record.

Asian stock indices also closed Friday in negative territory. Japan’s Nikkei index decreased by 2.53% (-3.00% for the week), Australia’s ASX 200 lost 1.73% (-1.58% for the week), China’s benchmark CSI 300 index decreased by 0.74% (-0.72% for the week), and Hong Kong’s Hang Seng lost 2.67%, closing the week down 3.90%, making it the biggest Asian decline.

At the commodities market, futures on natural gas (+7.43%) and corn (+1.07%) showed the biggest gains as of the end of the week. Futures on WTI oil (-13.04%), Heating oil (-12.36%), Brent oil (-11.35%), palladium (-5.11%), cocoa (-4.86%), copper (-4.04%), cotton (-3.33%), orange juice (-3.31%), lumber (-2.78%), sugar (-2.66%), and platinum (-2.3%) showed the biggest fall.