Risk assets were hit hard on Friday when news of the Covid-19 Omicron variant made the headlines during the Thanksgiving Day holiday in the US.
Equity markets were rocked, with the S&P500 falling more than 2.2 per cent on November 26 – its largest one-day drop in more than nine months – while crude plummeted about 12 per cent per barrel as investors weighed up the potential of another global lockdown and its effect on oil demand.
That the new variant hit headlines amid a low liquidity, holiday trading environment exacerbated the sell-off as risk aversion combined with liquidity risk.
The reaction to Omicron has been “act first, ask later”, with travel curbs from the African subcontinent quick to be introduced and some countries shutting borders altogether.
Along with Israel and Morocco, Japan was the first Group of Eight nation to announce a border closure to non-resident foreigners early Monday morning.
With the World Health Organisation deeming it “a variant of concern that carries higher risks than other viruses”, expect the uncertainty in markets to continue indefinitely as Omicron will dominate and drive risk moods in the short term.
What will be particularly interesting is if and how this new variant will affect future central bank policies.
Governments are clearly more sensitive to new variants and are ready to act far more swiftly, as seen by Japan’s actions on Monday.
One school of thought would suggest this could potentially delay further tapers to current monetary policy and tone down hawkish rhetoric to future interest rates.
Judging by the reaction of the US dollar to the new variant, this could be the case. The US dollar, traditionally seen as a safe haven that excels in a risk-off environment, sold off through Friday’s trading session.
This would suggest to me that markets were perhaps pricing in the potential for the Federal Reserve Bank to tone down its hawkishness towards future tapers and interest rate rises. This is also why US Treasury yields dumped off on Friday – with lower expectations of future rate hikes, bond yields fall and vice versa.
The underlying themes that we focused on before Omicron emerged remain the same, albeit overshadowed by the new variant.
Central banks will continue to remain sensitive to inflation risks. Minutes from the last Fed meeting reiterate that it is willing to tighten policy faster if inflation continues to run hot.
You may recall that the Personal Consumption Expenditure (PCE), the measure of inflation that the Fed follows most closely, increased to 5 per cent. This Friday’s non-farm payrolls will also be a key release – payrolls are expected to show a gain of 550,000 new jobs in November, with the overall unemployment rate improving to 4.5 per cent from a previous reading of 4.6 per cent.
Across the pond, EUR/USD on the Dubai Gold & Commodities Exchange dropped below 1.12 for the first time since July 2020.
The US dollar, traditionally seen as a safe haven that excels in a risk-off environment, sold off through last Friday’s trading session
Gaurav Kashyap,
head of futures at EGM Futures
Weakness is expected to continue for EUR/USD in the weeks ahead. Fundamentally, European Central Bank president Christine Lagarde has warned that monetary policy tightening could choke an EU recovery and minutes from the most recent ECB meeting suggested that the central bank would maintain “sufficient optionality in the calibration of its monetary policy measures”.
Coupling these dovish undertones with the emergence of the Omicron variant means that the outcome of the December ECB meeting will be even more uncertain.
And finally this week, Opec will discuss oil production with its non-Opec partners. While the group is largely expected to keep its current 400,000 barrels per day increase in place, its views towards future demand could see some additional volatility coming into US crude gauge West Texas Intermediate and global benchmark Brent contracts on the DGCX.
Gaurav Kashyap is head of futures at EGM Futures. The views and opinions expressed in this article are those of the author and do not reflect the views of EGM Futures
The biog
Full name: Aisha Abdulqader Saeed
Age: 34
Emirate: Dubai
Favourite quote: "No one has ever become poor by giving"
Tearful appearance
Chancellor Rachel Reeves set markets on edge as she appeared visibly distraught in parliament on Wednesday.
Legislative setbacks for the government have blown a new hole in the budgetary calculations at a time when the deficit is stubbornly large and the economy is struggling to grow.
She appeared with Keir Starmer on Thursday and the pair embraced, but he had failed to give her his backing as she cried a day earlier.
A spokesman said her upset demeanour was due to a personal matter.
UAE currency: the story behind the money in your pockets
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SPEC SHEET
Display: 6.8" edge quad-HD dynamic Amoled 2X, Infinity-O, 3088 x 1440, 500ppi, HDR10 , 120Hz
Processor: 4nm Snapdragon 8 Gen 1/Exynos 2200, 8-core
Memory: 8/12GB RAM
Storage: 128/256/512GB/1TB
Platform: Android 12
Main camera: quad 12MP ultra-wide f/2.2, 108MP wide f/1.8, 10MP telephoto f/4.9, 10MP telephoto 2.4; Space Zoom up to 100x, auto HDR, expert RAW
Video: 8K@24fps, 4K@60fps, full-HD@60fps, HD@30fps, super slo-mo@960fps
Front camera: 40MP f/2.2
Battery: 5000mAh, fast wireless charging 2.0 Wireless PowerShare
Connectivity: 5G, Wi-Fi, Bluetooth 5.2, NFC
I/O: USB-C
SIM: single nano, or nano and SIM, nano and nano, eSIM/nano and nano
Colours: burgundy, green, phantom black, phantom white, graphite, sky blue, red
Price: Dh4,699 for 128GB, Dh5,099 for 256GB, Dh5,499 for 512GB; 1TB unavailable in the UAE
The National in Davos
We are bringing you the inside story from the World Economic Forum's Annual Meeting in Davos, a gathering of hundreds of world leaders, top executives and billionaires.
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Tonight's Chat on The National
Tonight's Chat is a series of online conversations on The National. The series features a diverse range of celebrities, politicians and business leaders from around the Arab world.
Tonight’s Chat host Ricardo Karam is a renowned author and broadcaster with a decades-long career in TV. He has previously interviewed Bill Gates, Carlos Ghosn, Andre Agassi and the late Zaha Hadid, among others. Karam is also the founder of Takreem.
Intellectually curious and thought-provoking, Tonight’s Chat moves the conversation forward.
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UAE currency: the story behind the money in your pockets
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UAE currency: the story behind the money in your pockets
The specs
Engine: 4.0-litre flat-six
Torque: 450Nm at 6,100rpm
Transmission: 7-speed PDK auto or 6-speed manual
Fuel economy, combined: 13.8L/100km
On sale: Available to order now
UK-EU trade at a glance
EU fishing vessels guaranteed access to UK waters for 12 years
Co-operation on security initiatives and procurement of defence products
Youth experience scheme to work, study or volunteer in UK and EU countries
Smoother border management with use of e-gates
Cutting red tape on import and export of food
The specs
- Engine: 3.9-litre twin-turbo V8
- Power: 640hp
- Torque: 760nm
- On sale: 2026
- Price: Not announced yet
Specs
Engine: 51.5kW electric motor
Range: 400km
Power: 134bhp
Torque: 175Nm
Price: From Dh98,800
Available: Now
Company name: Play:Date
Launched: March 2017 on UAE Mother’s Day
Founder: Shamim Kassibawi
Based: Dubai with operations in the UAE and US
Sector: Tech
Size: 20 employees
Stage of funding: Seed
Investors: Three founders (two silent co-founders) and one venture capital fund
The specs
AT4 Ultimate, as tested
Engine: 6.2-litre V8
Power: 420hp
Torque: 623Nm
Transmission: 10-speed automatic
Price: From Dh330,800 (Elevation: Dh236,400; AT4: Dh286,800; Denali: Dh345,800)
On sale: Now
If you go
Flight connections to Ulaanbaatar are available through a variety of hubs, including Seoul and Beijing, with airlines including Mongolian Airlines and Korean Air. While some nationalities, such as Americans, don’t need a tourist visa for Mongolia, others, including UAE citizens, can obtain a visa on arrival, while others including UK citizens, need to obtain a visa in advance. Contact the Mongolian Embassy in the UAE for more information.
Nomadic Road offers expedition-style trips to Mongolia in January and August, and other destinations during most other months. Its nine-day August 2020 Mongolia trip will cost from $5,250 per person based on two sharing, including airport transfers, two nights’ hotel accommodation in Ulaanbaatar, vehicle rental, fuel, third party vehicle liability insurance, the services of a guide and support team, accommodation, food and entrance fees; nomadicroad.com
A fully guided three-day, two-night itinerary at Three Camel Lodge costs from $2,420 per person based on two sharing, including airport transfers, accommodation, meals and excursions including the Yol Valley and Flaming Cliffs. A return internal flight from Ulaanbaatar to Dalanzadgad costs $300 per person and the flight takes 90 minutes each way; threecamellodge.com
Global Fungi Facts
• Scientists estimate there could be as many as 3 million fungal species globally
• Only about 160,000 have been officially described leaving around 90% undiscovered
• Fungi account for roughly 90% of Earth's unknown biodiversity
• Forest fungi help tackle climate change, absorbing up to 36% of global fossil fuel emissions annually and storing around 5 billion tonnes of carbon in the planet's topsoil
UAE currency: the story behind the money in your pockets
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