Two factors appeared to be driving Monday’s losses.
“A combination of growing Omicron nerves, particularly in the UK and Europe, and the failure of President Biden’s spending plan … resulted in Asian stocks being propelled straight south in sympathy with the end of Wall Street on Friday,” wrote Jeffrey Halley, senior market analyst. Asia Pacific, in Oanda.
Citing the “apparent demise” of Build Back Better, Goldman Sachs now expects US GDP to grow 2% on an annualized basis in the first quarter, up from 3% previously.
Adding to the growing gloom is the threat Omicron poses to business. The highly transmissible variant had been identified in at least 45 states as well as in Puerto Rico and Washington DC by Sunday. And with Delta still present, Covid-19 cases are increasing in some areas. New York set a new record for one-day Covid-19 cases on Sunday for the third day in a row, according to Governor Kathy Hochul’s office.
Omicron is also spreading rapidly in Europe, causing governments across the region to introduce new measures to restrict travel and social activities. The Netherlands imposed a strict lockdown on Sunday, while France said on Friday it would ban large events and outdoor gatherings on New Years Eve. Denmark has closed cinemas and theaters and limited the number of people in shops this week.
“Even if booster vaccinations are effective in reducing medical risks, a rapid spread of Omicron could overload health systems and force countries to follow the Netherlands and introduce more economically damaging restrictions,” Berenberg chief economist Holger Schmieding wrote in a research note on Monday.
British Deputy Prime Minister Dominic Raab told Sky News on Monday that he could not rule out the possibility of further Covid-19 restrictions being introduced in England before Christmas.
Davos delayed
The World Economic Forum announced on Monday that its
“Current pandemic conditions make it extremely difficult to hold a global face-to-face meeting,” said a statement from the forum, citing Omicron’s impact on travel.
China is already experiencing a severe economic slowdown marked by a housing crisis, crackdown on private companies, Covid-19 outbreaks that have disrupted manufacturing and shipping, and a power shortage. Analysts say the world’s second largest economy could grow as slowly next year as it has since 1990.
The People’s Bank of China cut its key lending rate for the first time in 20 months on Monday, but the relief in the equity markets quickly faded.