European stocks, futures hit by vaccine worry as bonds jump

Bloomberg

Fresh concerns about the efficacy of existing vaccines against the omicron coronavirus strain pushed markets back into risk-off mode on Tuesday, with stocks in Europe dropping alongside US equity futures. Bonds gained as investors sought havens.
The Stoxx Europe 600 index falls more than 1%, more than wiping out an earlier advance. Cyclical sectors including retail, travel and carmakers were among the biggest decliners, while energy stocks tumbled as crude oil headed for the worst monthly loss this year. S&P 500 contracts slid about 1% and the US 10-year Treasury yield sank below the levels hit on November 26, when omicron-induced fears for global economic reopening first roiled markets. Commodity-linked currencies were in the red, and the yen and gold climbed.
Moderna Inc’s Chief Executive Officer Stephane Bancel told the Financial Times that existing vaccines will be less effective at tackling omicron and it may take months before variant-specific jabs are available at scale. That followed suggestions by South African scientists that the variant presented with relatively mild symptoms, which helped buoy markets
as traders grappled with the
questions about the economic impact of the strain.
Federal Reserve Chair Jerome Powell said omicron poses risks to both sides of the central bank’s mandate for stable prices and maximum
employment. That stoked speculation the strain could delay interest-rate hikes. Meanwhile, euro-area inflation for November is set to reach its highest on record, clouding the European Central Bank’s policy path. Travel bans have already hit
international links and the
variant could add to price
pressures if it exacerbates the supply-chain disruptions.
“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) Pte. “I expect more downside risk for the next couple of weeks unless there’s more clarity on the
omicron strain.”
Powell, in prepared testimony, 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 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. Hang Seng’s China stock gauge closed at the lowest level since May 2016.
Elsewhere, emerging-market stocks declined for a third
day, with the benchmark index
hitting a one-year low. Risk aversion also buffeted cryptocurrencies, with the Bitcoin
dropping towards $56,000.
The Stoxx Europe 600 falls 1.2% as of 8:56 am London time and futures on the S&P 500 also drop 1%.
Futures on the Nasdaq 100 fall 0.4% and futures on the Dow Jones Industrial Average also slump 1.4%. The MSCI Asia Pacific Index also falls 0.5% and the MSCI Emerging Markets Index drops 0.4%.
The Bloomberg Dollar Spot Index falls 0.3% and the euro rises 0.5% to $1.1349.
While the Japanese yen rises 0.6% to 112.90 per dollar, the offshore yuan also climbs 0.2% to 6.3753 per dollar. The British pound rises 0.3% to $1.3353.
The yield on 10-year Treasuries declined six basis points to 1.44% and Germany’s 10-year yield declined two basis points to -0.34%.