Markets gain ground on encouraging Omicron report

A weekend report on Omicron cases in Gauteng brings hope that we will be able to avoid a major global lockdown. While we could see monetary policy hold back tech stocks, we are looking increasingly likely to stage a Santa rally. Airlines stocks on the rise as countries slowly realise that travels restrictions are hopeless when you have community transmission of a highly contagious virus.

• Markets on the rise, as Tshwane Omicron report brings hope
• Monetary implications for mild variant brings potential for USD and GBP fight back
• Airlines on the rise on reports that the EU could remove restrictions on African countries

US markets have largely followed their European counterparts higher today, with stocks evidently feeling more confident despite recent woes. Fears around how the Omicron variant could spark a fresh bout of global lockdowns are slowly easing, with weekend reports from Gauteng providing on-the-ground information that backs up claims that this variant is more mild in nature. Some of the more encouraging aspects of the weekend report from Tshwane include shorter time for patients to be discharged, less reliance on oxygen treatment, and the disclosure that many ‘hospitalised’ Covid patients were actually attending for an unrelated condition but happened to test positive. The early experiences in Tshwane bring early optimism that the world may avoid a lockdown, with stocks higher as a result. Should further testing produce greater grounds for Omicron optimism, it looks likely that stocks should enjoy a welcome Santa rally as we close out the year. However, one significant consideration comes in the form of the Fed’s monetary policy stance, with Powell laying out plans to ramp up tapering in the face of persistent inflation. Should the Omicron variant prove mild enough to avoid prologued lockdowns, traders will be looking to reverse the recent dollar and pound short moves. The strength of the pound and dollar against the euro and Yen highlight the resumption of monetary policy-based trades geared against those with hesitant central banks such as the BoJ and ECB. Unfortunately for tech stocks, their elevated valuations have been built on easy money from the Fed, with the underperformance in the Nasdaq today highlighting fears of a forthcoming monetary squeeze. 

Airlines stocks have been given a boost after reports that the EU may consider easing restrictions on countries in Southern Africa. With the Omicron variant already evident throughout much of Europe, the lack of noticeable symptoms means Europe will soon see a sharp rise in cases irrespective of any rules on international travel. With many nations requiring passengers to provide evidence that they are Covid-negative, it seems the risk of catching Omicron from international travel will soon be no more likely than doing so on a train or a bus.