Global markets stabilized on Monday, with U.S. stocks and oil prices rising, as investors more carefully considered the knowledge and unknowns of a new variant of Covid-19.
The S&P 500 rose about 1.3% early in the session, rebounding from a 2.3% drop on Friday, its worst day since February.
Shares on Wall Street and in Europe fell sharply on Friday after the first news of the discovery in southern Africa of the new variant, called Omicron. The World Health Organization has called it a “variant of concern”, its most serious category. Shares of companies in sectors that have rebounded in recent months, such as airlines and other travel agencies, have been hit hard as governments reintroduced limits on cross-border travel. Oil prices plunged amid concerns about the economic track record of potential restrictions, while government bond yields fell amid an investor flight to the relative safety of sovereign debt.
On Monday, with quick answers to the Omicron threat hard to come by, investors appeared to be focused on possibilities other than disaster. While the new variant could prove to be more contagious and resistant to the vaccine, it could also prove to be less dangerous for the health of people vaccinated or previously infected. Scientists have not come to definitive conclusions and it could take up to two weeks before testing of current vaccines on the new variant yields results.
“We don’t know how dangerous it is to health, although the first reports that it is not very dangerous, although played down by cautious experts, are very attractive,” wrote Kit Juckes, strategist. to Société Générale, in a note to clients. “Against this backdrop, part of the Friday madness has been reversed, but only part of it.”
Stocks in Europe rose, with the Stoxx Europe 600 rising 1.3%. Stock market indices in London and Paris increased by more than 1.5%.
Another sign of improving market sentiment is that oil prices have risen. Futures contracts on the two main benchmarks, Brent crude and West Texas Intermediate, gained 5.6% and 6.6%. Yields on government bonds also climbed. The yield on 10-year Treasury bills rose 9 basis points, or 0.09 percentage point, to 1.56%. On Friday, the yield fell 16 basis points, the largest one-day drop since late March 2020.
Asia-Pacific stocks fell widely on Monday, making up for some of Wall Street’s losses. Japan’s Nikkei 225 index fell 1.6% on the day the government sealed the country’s borders, just days after it opened to short-term business travelers and international students. The Hong Kong market ended the day down 1%, its lowest level in over a year. Shares of airlines continued to fall, as did Cathay Pacific, which lost 3.6%, extending Friday’s 4.1% decline.