Global shares slide as Moderna CEO's comments fan Omicron fears; STI falls 2.5%

Positive sentiment though was replaced swiftly with a sudden burst of risk aversion in most major asset markets across Asia. PHOTO: EPA-EFE

LONDON (REUTERS, BLOOMBERG) - Global share markets weakened sharply on Tuesday (Nov 30), giving up earlier gains, as warnings by Moderna's chief on the Omicron coronavirus variant spooked investors and fuelled a broad sell-off.

The Stoxx Europe 600 index fell about 1.5 per cent to a seven-week low in early trading. Retail, travel and carmakers were among the biggest decliners, while energy stocks tumbled as crude oil headed for the worst monthly loss this year.

Futures on the Dow Jones Industrial Average fell 1.4 per cent and the US 10-year Treasury yield sank below the levels hit Friday, when Omicron-induced fears for global economic reopening first roiled markets. Commodity-linked currencies were in the red, and safe-haven yen and gold climbed.

In Singapore, the Straits Times Index saw its largest single-day drop in a year, falling 79.29 points or 2.5 per cent to close at 3,041.29.

Japan's Nikkei average lost 1.6 per cent, hitting its lowest level since Oct 7 and erasing earlier gains fuelled by hopes that Omicron's impact might not be as severe as feared.

Hong Kong shares slumped to a more than one-year low with the Hang Seng Index tumbling 1.6 per cent.

South Korea's Kospi sank 2.4 per cent to its lowest close since Dec 29, 2020.

The region's trading had earlier followed a brighter lead from Wall Street on Monday which reacted positively to news from United States President Joe Biden that new lockdowns as a result of the variant were off the table for now.

Positive sentiment though was replaced swiftly with a sudden burst of risk aversion in most major asset markets across Asia after the head of drugmaker Moderna told the Financial Times that Covid-19 vaccines are unlikely to be as effective against the Omicron variant of the coronavirus as they have been against the Delta variant.

Moderna chief executive Stephane Bancel said he foresees a "material drop" in the effectiveness of current jabs against the new variant and warned it would take months before pharmaceutical companies can manufacture new variant-specific jabs at scale.

"It's not good news, and it's coming from someone who should know," said Commonwealth Bank of Australia currency strategist Joe Capurso. "Markets have reacted in exactly the way you'd expect them to with Aussie and kiwi taking the brunt."

"In the near term, there is a lot of uncertainty and the markets are starting to price in some level of risk," said Mr Jack Siu, Credit Suisse's chief investment officer for Greater China. "Essentially the recovery should stay under way but we are in an environment of volatility."

The Japanese rose 0.6 per cent to 112.83 per US dollar, while spot gold gained 0.7 per cent to US$1,796.44 an ounce.

Brent crude fell 3.1 per cent to US$71.20 a barrel.

"Information on the Omicron variant is sketchy, how drastic its symptoms will be and how easily it can spread is also unknown, as is the effectiveness of current vaccines," said Kelvin Wong, an analyst at CMC Markets (Singapore). "I expect more downside risk for the next couple of weeks unless there's more clarity on the Omicron strain."

Federal Reserve chair Jerome Powell said Omicron poses risks to both sides of the US central bank's mandate for stable prices and maximum employment. That stoked speculation the strain could delay interest-rate hikes, though travel bans have already hit international links and the variant could add to inflation pressures if it exacerbates supply-chain disruptions.

Mr Powell, in prepared testimony released on Monday, said the "recent rise in Covid-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation."

He didn't discuss specific monetary policy actions or the possibility of changing the pace of the tapering of Fed bond purchases - a key issue that other officials have flagged in recent remarks. The Fed chair will be closely watched when he appears before a Senate committee later Tuesday together with Treasury Secretary Janet Yellen.

The vaccine doubts overshadowed positive data from China, which showed factory sentiment improved in November as the impact of a power crunch subsided and inflation pressures eased.

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