Asian Open: Traders brace for more turbulence due to Omicron outbreak

To say markets were volatile on Friday would be quite an understatement. So today is about whether the selling will continue, or whether volatility will pause for breath.

Charts (1)

Asian Futures:

  • Australia’s ASX 200 index closed at 7,279.30 on Friday
  • Japan's Nikkei 225 index closed at 28,751.62 on Friday
  • Hong Kong's Hang Seng index closed at 24,080.52 on Friday
  • China'sA50 Index closed at 15,488.25 on Friday

European Friday close:

  • UK's FTSE 100 index fell -266.34 points (-3.64%) to close at 7044.03
  • Europe'sEuro STOXX 50  index fell -203.66 points (-4.74%) to close at 4089.58
  • Germany's DAX  index fell -660.94 points (-4.15%) to close at 15257.04
  • France's CAC 40 index fell -336.14 points (-4.75%) to close at 6739.73

US Friday close:

  • The Dow Jones fell -905.06 points (-2.53%) to close at 34,899.34
  • The S&P 500 fell -106.84 points (-2.28%) to close at 4,594.62
  • The Nasdaq 100 fell -342.231 points (-2.09%) to close at 16,025.58
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Two Omicron variant cases detected in Australia

Two people that arrived in Sydney on Saturday evening from South Africa over the weekend have tested positive for the Omicron variant. So far cases outside of SA have also been detected in the UK, Hong Kong, Germany, Italy and the Netherlands.

The Australian government closed its borders with nine African nations yesterday including South Africa. And any Australians who have been to any of them within the past fourteen days will be sent to supervised quarantine. That said, borders were still technically closed as the plan was to relax them from December 1st for skilled migrants and international students. As far as we know the plan remains to open up on Wednesday, although individual states will be able to decide who they open their borders up to, or if they do at all. So, as with other nations, how the government is perceived to act will likely be the key driver for sentient over calendar events for the foreseeable future.

‘Mild symptoms’ a glimmer of hope?

It has been less than three days since the alarm bells initially rang, and whilst cases are still being detected we do not really know the true impact of this latest strain. However, some reports have surfaced that symptom of Omicron are both different to other strains of covid and potentially mild. One Doctor in South Africa noted that many of the covid cases had no loss of taste or smell but did feel very fatigued and had mild coughs. So perhaps we have a highly contagious, yet mild strain. And if that is the case, markets could very well rally through December as original feared recede and markets refocus on Fed tightening and of course Santa’s rally. To counter that, we also do not have enough data yet to know what impact this new strain has on the various age groups.  And this is what eyes will be on over the coming days (and next two weeks) as it will likely dictate not only Christmas, but what sort of world we live in as we enter 2022.

Markets bet on a Fed U-turn

Despite raging (and suspected persistent) level of inflation, traders are seriously questioning whether the Fed will want to fully taper or raise interest rates. Fed funds are Eurodollars were higher to denote a lower probability of tightening policy, with the July Eurodollar contract rising at its fastest pace since March 2020. We’re yet to hear Fed members speak of their concerns of the latest outbreak, but it could send further ripples through financial markets if they blink and hint at slowing their pace of tapering (as this also pushes back any chance of a rate hike.

Forex markets opened without any significant gaps

Of course, gaps were present but relative to the wild swings on Friday they seemed reasonable. AUD/USD is up around 0.3% and held above Friday’s (and the August) low. USD/CHF gapped higher by around 0.35% to recoup some of Friday’s -1.44% loss whilst GBP/USD is effectively flat.

Worst session for oil since it fell below $0.00

If you want to gauge the panic across markets on Friday look no further than oil. WTI futures fell over 13%, which is its worst session since the infamous move below $0 in April 2020. Traders are clearly concerned with how governments will react to the new variant of COVID-19 and the impact on oil demand. Now trading below $70 for the first time in two months, it makes a likely resistance level (with 70.10 and 70.75 also contenders looking at futures trading activity). As for support, Friday’s low sits at 67.39 The Thomson Reuters commodity index fell -4.8% (or -1.9% excluding energy).

Not all commodities fell though. Gold rose a mere 1.2% by the close, although it initially rose by 2%. And given the risk-off environment that is not a strong close by any means. Yet is also plausible that traders were simply going to cash as opposed to flocking to the safety of gold.

ASX 200 back below 7300

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The biggest risk to the ASX right now is if the Australian government walks back their decision to ease travel restrictions on Wednesday, or individual states keep their borders closed. To counter that, the biggest upside potential is if travel restrictions are eased and the new variant is indeed mild and no major threat. As for the ASX 200, to closed below 7300 on Friday to its lowest level this month. Support was found at the weekly S2 pivot and we its potential to head for 7200. Take note of the cluster of support levels between 7145 – 7185, with resistance sitting around 7310 – 7337.

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ASX 200: 7279.3 (-1.73%), 28 November 2021

  • Consumer Staples (-0.63%) was the strongest sector and Energy (-4.56%) was the weakest
  • 11 out of the 11 sectors closed lower
  • 6 out of the 11 sectors outperformed the index
  • 14 (7.00%) stocks advanced, 182 (91.00%) stocks declined
  • 55% of stocks closed above their 200-day average
  • 42.5% of stocks closed above their 50-day average
  • 28.5% of stocks closed above their 20-day average

Outperformers:

  • + 2.17%-St Barbara Ltd (SBM.AX)
  • + 1.23%-Evolution Mining Ltd (EVN.AX)
  • + 1.19%-Silver Lake Resources Ltd (SLR.AX)

Underperformers:

  • -18.81%-Appen Ltd (APX.AX)
  • -7.45%-Flight Centre Travel Group Ltd (FLT.AX)
  • -5.8%-Corporate Travel Management Ltd (CTD.AX)

Up Next (Times in AEDT)

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