After three waves of infections, and four waves of restrictions, we have now landed on the 15th letter of that ancient alphabet - Omicron. Discovered in November in South Africa, the World Health Organisation has described Omicron as highly transmissible.
Investors are unsure of their next steps, given the impact on financial markets from Omicron has resulted in both stock market bull and bear rallies. Key market players are wringing their hands over the looming possibility of additional pandemic-related measures that could disrupt the flow of the global economy, just like in 2020.
In Europe, this fear is well-grounded as the stock market has fared worse than expected in the three weeks leading up to Christmas. Consequently, several European countries have enacted tighter measures against Omicron. The Netherlands has mandated a nationwide lockdown. France, Cyprus, and Austria responded to this news by enforcing stricter travel regulations. Those living in Denmark and Ireland will no longer enjoy museums, pubs, and amusement parks.
The stock market, though, is of particular concern as we tend to regard a nation's economic performance based on the strength or weakness of its stock exchange. The European stock market closed at a dramatically lower rate than usual considering all this recent containment activity. Demand for commodities dropped towards the beginning of December, resulting in a 1% decrease on the FTSE 100 index. STOXX 600, a pan-European entity, saw a 1.4% loss in the same period, as did auto stocks which fell by 2.7%.
Conversely, the pre-holiday period saw stocks moving in the opposite direction once more news about Omicron came out. Health officials began to say, tentatively, that this variant may not have the same severe physiological effects as previous variants. The Parisian CAC, for example, closed out the period at 0.9%, a figure higher than usually experienced on this stock market. The DAX in Frankfurt had an equally surprising increase, closing at 1.1% higher in the same period. London's FTSE 100 also experienced satisfactorily optimistic highs, mainly thanks to activities in the travel and hospitality sector of the economy.
Cautiously optimistic is the best way to describe the mood of the traders on the European stock market. Seasoned investors are expecting moves from major institutions - such as the Federal Reserve, the Bank of England, and the European Central Bank - to have further effects on trading. The Federal Reserve, for instance, will drastically cut the nationwide stimulus program. The Bank of England, meanwhile, has been a forerunner in increasing interest rates as a response to the pandemic.
Though it is, thankfully, resulting in fewer hospitalisations than its previous iterations, Omicron remains a mystery in many areas. Not enough is known about it and its reactions to the COVID-19 vaccine. Equiti Capital's David Madden views cautious optimism as a reasonable response to the current circumstances. In his opinion, stock markets will continue to exhibit patterns of rally and pullback for a long while yet.
