US: Equities slip as cost of Omicron variant weighed

[NEW YORK] US stocks fell and bonds rallied as the economic threat of restrictions to control the new coronavirus variant outweighed optimism about the efficacy of vaccines. Both the S&P 500 and Nasdaq 100 retreated, ending a 3-day rally on Thursday (Dec 9).

Travel companies and airlines declined, while drugmakers including Pfizer rose. CVS Health jumped after saying it would buy back shares and raise dividends. Treasuries rallied alongside government bonds across Europe.

The cost to contain the Omicron strain is being tallied up amid mounting concern it will crimp the economic rebound.

New work-from-home guidance in the UK could cost the country's economy £2 billion (S$3.6 billion) a month, according to Bloomberg Economics.

A study found that Omicron is 4.2 times more transmissible than the delta variant in its early stages. "Ultimately the issue from a health perspective is that even if Omicron does prove to be less severe - which the initial indications so far have pointed to - a rise in transmissibility could offset that," said a team of Deutsche Bank strategists including Jim Reid. That could mean that more people are in the hospital, "even if a lower proportion of them are severely affected".

The global equity rally faces further potential road bumps ahead from US consumer inflation numbers this week and a Federal Reserve meeting next week that may provide clues on the pace of tapering and interest rate increases.

The US dollar stayed higher on Thursday after a report showed that applications for US state unemployment benefits declined to the lowest level since 1969. However, economists flagged difficulties in seasonal adjustments to arrive at that figure. On an unadjusted basis, initial claims climbed.

"From a Fed perspective the question is, what about the participation rate? If everything else looks good in terms of employment, can monetary policy bring back that participation rate? I'm sceptical there," said Glenn Hubbard, dean emeritus and economics professor at Columbia Business School, on Bloomberg TV. "I think the labour market is in great shape. It is time for the Fed to adjust."

The S&P 500 fell 0.4 per cent as at 9.30 am New York time. The Nasdaq 100 rose 0.4 per cent. The Dow Jones Industrial Average fell 0.4 per cent. The Stoxx Europe 600 fell 0.1 per cent. The MSCI World index was little changed,

BLOOMBERG