(Bloomberg) — Investor sentiment sagged Monday amid rising global omicron infections and turmoil for President Joe Biden’s economic agenda, spurring selloffs in stocks, equity futures and oil, while bolstering sovereign bonds.
European stocks dropped the most in more than three weeks, while U.S. futures slid at least 1% and Asian shares dropped. Bonds gained and the dollar held a jump from Friday, while crude oil slid on worries that mobility curbs to tackle the strain will hurt demand.
Lockdown risks are rising in Europe as U.K. Health Secretary Sajid Javid refused to rule out stronger measures before Christmas, while the Netherlands returned to lockdown and other nations are weighing more curbs to stem the rapid spread of omicron. U.S. clampdowns likely won’t be necessary, but President Joe Biden is planning to warn the nation on Tuesday of the perils of remaining unvaccinated and his top medical adviser warned that hospitals may be strained.
Separately, Goldman Sachs Group Inc. economists reduced their U.S. economic growth forecasts after Senator Joe Manchin blindsided the White House on Sunday by rejecting Biden’s roughly $2 trillion tax-and-spending package, leaving Democrats with few options for reviving it.
Commodity-linked currencies struggled, while the lira tumbled to another record low after Turkish President Recep Tayyip Erdogan pledged to continue cutting interest rates.
Europe is also bracing for energy shortages as freezing weather sets in, boosting demand and sending prices surging at a time supply just can’t keep up.
Travel, commodity and energy shares were among the biggest declines in Europe. In individual moves, Novo Nordisk A/S plunged after the Danish drugmaker warned of supply challenges with its new obesity drug in the key U.S. market.
Markets are grappling with a range of uncertainties while heading toward a holiday period when thinner trading volumes can exacerbate swings.
“Investors should be prepared for Covid to continue to be a main factor in market performance heading into 2022,” said Robert Schein, chief investment officer at Blanke Schein Wealth Management. “After the bull run we’ve seen over the past 21 months, investors aren’t as used to prolonged periods of volatility.”
Global stocks have retreated from record highs in recent weeks amid investor concerns about Covid-19 hurting the economic recovery and as central banks pivot toward fighting inflation. Federal Reserve Governor Christopher Waller said a faster wind-down of the central bank’s bond-buying program puts it in a position to start lifting interest rates as early as March.
“As for what to do in the face of these risks?” wrote Luke Hickmore, investment director at Standard Life Investments. “Buy the dip. The prospects for growth will improve rapidly from here, likely due to Omicron remaining mild compared to Delta. Companies are ready to spend on Capex, people will get past any short term fire breaks for omicron and the market will likely see a recovery in the new year when liquidity returns.”
In China, banks lowered the one-year loan prime rate, a key benchmark of borrowing costs, for the first time in 20 months. But that did little to shore up risk appetite.
Meanwhile, Germany’s new coalition picked Joachim Nagel, a Bank for International Settlements official, as the central bank’s next president, according to a person familiar with the matter.
For more market analysis, read our MLIV blog.
What to watch this week:
- Reserve Bank of Australia releases minutes of its December interest rate meeting. Tuesday
- EIA crude oil inventory report Wednesday
- Bank of Japan Governor Haruhiko Kuroda speaks Thursday
- U.S. consumer income , new home sales, U.S. durable goods, University of Michigan consumer sentiment, initial jobless claims. Thursday
- Friday: U.S. markets are closed. European markets close earlier
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 1.6% as of 10:09 a.m. London time
- Futures on the S&P 500 fell 1.4%
- Futures on the Nasdaq 100 fell 1.5%
- Futures on the Dow Jones Industrial Average fell 1.3%
- The MSCI Asia Pacific Index fell 0.9%
- The MSCI Emerging Markets Index fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.2% to $1.1259
- The Japanese yen was little changed at 113.55 per dollar
- The offshore yuan was little changed at 6.3880 per dollar
- The British pound fell 0.4% to $1.3188
Bonds
- The yield on 10-year Treasuries declined three basis points to 1.38%
- Germany’s 10-year yield declined one basis point to -0.39%
- Britain’s 10-year yield declined two basis points to 0.73%
Commodities
- Brent crude fell 4% to $70.57 a barrel
- Spot gold was little changed
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