By Michael O’Neill
Who new Optimus Prime had an evil twin named Omicron Prime?
Fans of the Transformers comic books, cartoons, video games and movies know Optimus Prime is the leader of the heroic Autobots, a sentient race from the planet Cybertronic.
For those who have never heard of Transformers; they are a line of Takara Tomy/Hasbro action figures, first released in 1984. The toys could be manipulated, Rubik cube-style, from a vehicle or animal into a robot, or vice versa, hence the name.
Omicron Prime is not a toy. Omicron is the name of the latest, very contagious, mutant spawn of COVID-19. It was first identified by a South African doctor, Angelique Coetzee around November 18 after seeing a few patients with unusual symptoms. The World Health Organization was alerted and declared it “a variant of concern” on November 26.
Financial markets seem to have heard “variant of doom” and when American’s returned to work after their Thanksgiving holiday on November 27, Wall Street suffered its worst day of the year. The US dollar surged on the back of safe-haven demand, oil prices plunged, and gold rallied, albeit unenthusiastically.
But that was Friday.
Traders spent the first three days of the following week transforming between fear and faith, but by mid-morning on December 1, the Dow Jones Industrial Average only recouped. Stocks could not get any sustainable upward traction due to contradicting Omicron concerns and Fed Chair Powell’s admission that inflation may be a thing.
Omicron concerns were alleviated somewhat by comments from Dr. Angelique Coetzee who said, “What we are seeing clinically in South Africa — and remember I’m at the epicenter of this where I’m practicing — is extremely mild.”
The improved sentiment was torpedoed by vaccine manufacturer Moderna’s CEO Stephane Bancel, who told the Financial Times that “there was no world” where the existing vaccines would effectively combat Omicron compared to other strains like delta.
Mr. Bancel is a billionaire, a Harvard graduate, and 10% owner of Moderna. His job is to sell vaccines and boosters, which suggests an undercurrent of hyperbole around his remarks.
The World Health Organization (WHO) said it will take weeks to understand the impact of the variant on vaccines, and diagnostics, but noted that the variant is spreading more rapidly than previous strains. The WHO is the same organization that was complicit in China’s actions to cover-up the initial COVID-19 outbreak.
American health authorities were fairly calm. Dr Fauci, Chief Medical Advisor to the President, stressed that Health authorities do not know enough about the latest mutation to draw any conclusions.
One comment of note was that vaccines and boosters give a degree of cross-protection, particularly against severe disease.
Source: White House COVID-19 Response Team briefing
Traders were just starting to put Omicron variant concerns on the backburner when Fed Chair Jerome Powell addressed Congress.
In his opening statement, he acknowledged that inflation risks were rising. He said, “overall inflation is running well above our 2 percent longer-run goal, with the price index for personal consumption expenditures up 5 percent over the 12 months ending in October.”
His response to a question about how long inflation would need to rise before it is no longer transitory, roiled markets like a cauldron of toxic brew.
Mr Powell said “I think it’s probably a good time to retire that word and try to explain more clearly what we mean.”
It was not what US dollar bears or equity bulls wanted to hear. To them, Mr Powell telegraphed an early end to tapering which means rates will rise sooner than expected.
The greenback rallied, and stocks tumbled. But bonds were steady. The US 10-year yield flitted around 1.44% on Tuesday. Surely, if the Fed was planning rate hikes sooner than expected, yields would rise. If safe-haven demand for Treasuries is capping gains, the lack of data about the latest coronavirus variant suggests that demand may be limited.
The Canadian dollar became collateral damage due to the Omicron news, Powell’s testimony, and free-falling oil prices. But is it too much?
Not if you consider the governments climate change policies are resulting in lower energy exports and by default lower tax revenues. Hostile US trade actions including the doubling of softwood lumber tariffs and Biden’s buy American auto plan will also weigh on the Canadian economy.
Real GDP grew 5.4% year over year in the third quarter but the Omicron virus and the downward revision to Q2 data has analysts reducing their Q4 forecasts.
Viruses are transforming into more aggressive variants while financial markets transform into holiday mode. Take price volatility with a grain of salt.