FTSE 100 falls flat at the close on Omicron concerns

• FTSE 100 down 31 points
• AstraZeneca slides
• Airlines under pressure
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4.50pm: FTSE falls flat at the close

The FTSE 100 sank further at Tuesday's close after worries that the existing COVID vaccines would not protect as effectively against Omicron.

The index sank 31 points on the day to finish at 7,079 points, a loss of 0.44% on the day.

IG senior market analyst Joshua Mahoney offered a bit of reassurance to investors in his Tuesday commentary.

"While the Moderna CEO may have whipped up fears over weak vaccine protection against the Omicron variant, he offered little new data to justify the sharp European losses this morning," Mahoney wrote. "While data remains thin on the ground given the relative infancy of this strain, markets are likely to remain highly volatile and unpredictable as they react to any news that could guide our expectations over how this will play out."

3.56pm: Sentiment remains fragile despite rebound

Leading shares have recovered much of the ground lost early on, when investors were spooked by comments from Moderna boss Stéphane Bancel questioning the efficiency of existing vaccines on the new Omicron variant.

But markets have taken some heart from more positive comments later from the University of Oxford, as well as suggestions the effects of the new variant may be milder than feared.

So having dropped to 6989, the FTSE 100 is down just 10.08 points or 0.14% at 7099.87 heading into the close.

In the US the Dow Jones Industrial Average is also off the worst, down 223 points or 0.64%.

Michael Hewson, chief market analyst at CMC Markets UK, said: "With market sentiment as fragile as it currently is and putting to one side that a lot more testing still needs to be done on this variant, [Bancel's comment] comes across as a remarkably careless thing to say this early on, even allowing for the fact that he’s the CEO of a company that is not only producing the vaccine but has made a huge amount of money out of doing so.

"On the other side of the argument, Oxford University was far less contentious, saying that there is no evidence yet that vaccines won’t protect against severe disease from Omicron, and more testing needed to be done, which is surely the main point. While the vaccines may not be 100% effective, even if they limit the severity of the disease then surely, they are still doing their job.

"Quite simply, at this point its too early to be certain, and maybe the best advice we should give to CEOs of pharma companies is to keep it shut, unless they have something other than conjecture at this point.

"Unfortunately, markets tend not to do nuance, and while we’ve seen a recovery off the low’s sentiment remains fragile. The recovery off the lows of the day may well be due to reports out of South Africa that so far, the variant has been of the mild variety, with no hospitalisations so far to speak of, with similar reports out of Europe and the UK."

With metal prices holding firm, commodity companies are providing some support.

Anglo American PLC (LSE:AAL) has added 4.3% while BHP Group PLC (LSE:BHP) is 2.43% better.

But concerns that any further restrictions could cause more supply chain problems have helped push J Sainsbury PLC (LSE:SBRY) down by 3.8%.

And airlines have fallen on fears that the new variant could once more hamper travel, with British Airways owner International Consolidated Airlines Group (LSE:IAG) losing 1.9%.

3.12pm: US consumer confidence slips

No great surprise perhaps, with worries about inflation and interest rate rises as well as the spread of the Delta variant, but US consumer confidence has come in worse than expected.

The Conference Board consumer confidence index fell to 109.5 this month compared to forecasts of a figure of 110.

Lynn Franco, senior director of economic indicators at the Board, said: "Consumer confidence moderated in November, following a gain in October.

"Expectations about short-term growth prospects ticked up, but job and income prospects ticked down.

"Concerns about rising prices - and to a lesser degree, the Delta variant - were the primary drivers of the slight decline in confidence...

"The Conference Board expects this to be a good holiday season for retailers and confidence levels suggest the economic expansion will continue into early 2022.

"However, both confidence and spending will likely face headwinds from rising prices and a potential resurgence of COVID-19 in the coming months."

2.58pm: US investors weigh up variant risks

US markets have indeed opened lower on growing concerns about the Omicron variant.

But things are not quite as bad as had been earlier feared.

The Dow Jones Industrial Average is 326 points or 0.93% lower at 34,809 while the S&P 500 has fallen by 0.53% and the tech-heavy Nasdaq Composite is barely changed, down just a point.

2.26pm: Central bankers cautious about effect of new variant

Policymakers are warning the Omicron variant could threaten the global recovery from the pandemic,

US Federal Reserve chair Jerome Powell said in a statement prepared for his appearance before Congress later: "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.

"Greater concerns about the virus could reduce people's willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions."

Meanwhile Bank of England monetary policy committee member Catherine Mann is also cautious.

At a meeting organised by Barclays she warned the new variant could hit consumer confidence.

And she seemed to play down the idea of a rate rise this month.

But with the University of Oxford being more positive on the effect of vaccines on Omicron, leading shares have recovered much of the day's lost ground.

The FTSE 100 is now down just 22.55 points or 0.32% at 7087.10.

1.04pm: Commodity companies buck falls

Mining shares are giving some support to the market, which continues its minor recoveryy.

The FTSE 100, having fallen to as low as 6989, is now down 58.18 points or 0.82% at 7051.77.

Polymetal International PLC (LSE:POLY) has put on 3.24%, Anglo American PLC (LSE:AAL) has added 1.88% and BHP Group PLC (LSE:BHP) is 0.74% better.

AJ Bell investment director Russ Mould said: “Interestingly some of the big mining stocks saw share price gains. If the new variant causes disruption to economic recovery, one might conclude that commodities demand could weaken. However, the fact that stocks like Anglo American are rising in a falling market would suggest that investors aren’t panicking and automatically dumping anything economically-sensitive.”

12.04pm: US markets hit by Moderna comments

US stocks are expected to open lower after the comments from the chief executive of drugmaker Moderna Therapeutics Inc (NASDAQ:MRNA), who predicted that existing vaccines will be less effective against the Omicron variant than other strains of coronavirus (COVID-19).

Futures for the Dow Jones Industrial Average fell 1.29% in Tuesday pre-market trading, while the broader S&P 500 index declined 1.03% and those for the tech-heavy Nasdaq 100 shed 0.51%.

To recap, in an interview with the Financial Times, Stéphane Bancel said the high number of Omicron mutations on the spike protein and the rapid spread of the variant in South Africa suggest that existing vaccines may need to be modified, which could take months.

US stocks had closed higher yesterday, recovering from hefty losses on Friday when news of the new COVID-19 variant broke and sent the Dow down over 1,000 points to post its biggest one-day decline this year. 

On Monday, the Dow recouped 236 points, or 0.68% to close at 35,136, while the S&P 500 added 1.32% to 4,655 and the Nasdaq climbed 1.88% to 15,783. 

Meanwhile the worries about the new variant mean the FTSE 100 is still in negative territory, down 63.85 points or 0.9% at 7046.1.

But it is off its low as the University of Oxford came out with more positive comments than Moderna, saying it can rapidly update the COVID-19 vaccine if it needs to be modified to cope with the Omicron variant.

10.48am: Volatility set to continue

Leading shares are still down sharply but are off their worst levels.

Having fallen as low as 6989, the FTSE 100 is now down 82.95 points or 1.17% at 7027.

One thing analysts appear to agree on is that the volatility of the last few days is likely to continue, as investors await more details of the Omicron variant.

Chris Beauchamp, chief market analyst at IG, said: "A much gloomier mood prevails across markets this morning, and for that we have the Moderna CEO to thank. Yesterday saw the doom-laden consensus of last Friday swapped out for a much more optimistic one, as hopes of a smaller than feared hit from the new variant lifted indices.

"Today has been a reaction to that reaction, with the cue being the CEO comments; stocks have come off across the board, with global growth names hardest hit.

"Friday’s price action was likely a signal for at least a week of this kind of volatility, as markets scramble to price in the outlook using any data and news available. The dust will not settle for a while yet, and meanwhile the inflation drumbeat continues to sound, providing another reason to worry for beleaguered investors. With central banks having done their utmost in the previous part of this crisis, there is fear that they will be less able to act this time, and indeed may still continue on a tightening path."

AJ Bell investment director Russ Mould said: "Markets hate uncertainty, and this is precisely what we have now. No-one knows how much trouble the new variant is going to cause, and so it seems plausible that we will see heightened volatility on the markets until there is adequate data to better understand the lay of the land.

“However, in the bigger scheme of things today’s sell-off could have been a lot worse. European markets were down 1% or less. That’s become a normal day’s movement on many occasions over the past year or so."

James Penny, UK chief investment officer at TAM Asset Management, said: "While the Omicron variant is something to be concerned with, it doesn’t strike us as anything marginally different from the Delta sell-off we saw in the summer months which, despite being volatile at the time was simply a buying opportunity in the market.

"When the VIX [volatility index] spiked up on Friday by more than 50% this was indeed eye popping, but a lot of what has happened in the last few years in the markets has also been eye popping, conversely it just seemed to fit into the overall 2021 narrative of strong markets with short, sharp bouts of extreme volatility concluding with the “buy the dip” mentality."

10.20am: Euro area inflation jumps

More pressure on the European Cental Bank, which maintains it will not make any hasty moves on interest rates, as Eurozone inflation came in higher than expected this month.

It rose from 4.1% in October to 4.9%, compared to forecasts of around 4.5%.

And it follows this week's news that German CPI for November surged to 6% from 4.6% and Spanish CPI hit a 30 year high of 5.6%.

9.39am: FTSE falls 4% in November

The FTSE 100 has fallen below 7000 for the first time since early October.

It is now down 110.9 points or 1.56% at 6999.05

For November, it is down 4% and on course for its worst month since October 2020, when it lost nearly 5%.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “The roller coaster ride has resumed on the financial markets with yesterday’s rally looking more like a break run between a double dip of losses.  Investors are now strapping themselves in for a volatile ride anxious for any further news which could lift sentiment or send it plunging again, such as the comments from Moderna’s chief executive that current vaccines will struggle with Omicron because of the high level of mutations on the spike protein.

"It’s not known just how less effective they may be, and the waiting game continues as scientists scramble to assess the new variant, but amid this state of uncertainty, nervousness is high, with the FTSE 100 falling 1% in early trade."

Among the fallers J Sainsbury PLC (LSE:SBRY) is down 2.66%, possibly on concerns that fresh restrictions could make supply chains even worse.

Streeter said: "The retailer has already raised the alert about shortages of some items at its Argos arm."

9.26am: Mid-cap index falls but outperforms FTSE 100

The calm in the airline sector has not lasted long.

International Consolidated Airlines Group (LSE:IAG) is now down 2.85% while easyJet plc (LSE:EZJ) has lost 1.9%.

Meanwhile the FTSE 250 is also down, but not as much as the leading index.

The mid-cap index is off 1.02% at 22,523.97, supported by a 15% rise in the shares of Future PLC (LSE:FUTR) after the media group raised its full-year expectations.

9.13am: Market slide continues

The sell-off is gathering pace.

The FTSE 100 is now down 104.57 points or 1.47% at 7005.38.

Intercontinental Hotels Group PLC (LSE:IHG) is down 2.83% on concerns the new COVID-19 strain could hit its business if travel dries up again.

Lloyds Banking Group PLC (LSE:LLOY) has lost 2.76% on talk that another bump on the road to recovery could mean a delay in the nterest rate rises which would benefit its business.

BT Group PLC (LSE:BT.A), which was this week boosted by speculation of a possible takeover by India's Reliance Industries, is now down 2.54%.

Analysts at UBS said: "While we cannot rule out an approach by Reliance Industries... we think National Security law and the pension deficit could be notable barriers to M&A.

"The news follows prior reports that Reliance Industries was looking at T-Mobile NL earlier in the year that was ultimately acquired by private equity and it is not clear if Reliance Industries formally entered the bidding process.

"Should Reliance Industries bid for BT, we think this could be negative for both the UK market and the broader European Telecoms sector. However, it is not clear to us whether such a move would fit within the financial and strategic framework for Reliance Industries. The prospect of an operator with a successful track record of being disruptive potentially entering the UK market could lead to concerns about rising competition. In addition, there may be concerns on the scale of Reliance Industries ambitions for Europe as a whole."

France's Altice is also hovering around BT with a 12.1% stake, and a moratorium on it bidding expires on 10 December.

8.31am: AstraZeneca hit by Omicron worries

AstraZeneca PLC (LSE:AZN) is among the biggest fallers so far.

Its shares are down 2.35% on the concerns that current vaccines may not be as effective against Omicron.

This has outweighed news that its new drug application for Lynparza has been granted priority review in the US for treatment of breast cancer.

8.25am: Airlines buck downward trend

Leading shares have dropped sharply on growing concerns about the Omicron variant, thanks to the comments from Moderna boss Stephane Bancel casting doubts of the effectiveness of existing vaccines on the new strain.

The FTSE 100 has fallen 72.43 points or 1.02% to 7037.52, wiping out all of Monday's gains as the market's rollercoaster ride since the end of last week continues.

Brent crude has dropped 2.66% to an eleven week low of US$71.49 a barrel on fears the new variant could derail the global economic recovery.

So BP PLC (LSE:BP.) is down 1.43% while Royal Dutch Shell PLC (A shares) (LSE:RDSA) has lost 1.09%.

But airlines strangely are bucking the trend despite worries about further restrictions on travel.

easyJet plc (LSE:EZJ) has added 0.99% after it reported slightly better than expected full year losses of £1.14bn.

British Airways owner International Consolidated Airlines Group (LSE:IAG) is up 0.69%.  

But Richard Hunter, head of markets at interactive investor, said: “Caught in the eye of the storm as the latest variant derails a tentative recovery, the outlook for airlines has been thrown into doubt once more.

“While the extent and impact of Omicron are not yet fully understood, the reaction from governments in restricting travel is becoming the norm. This begs the questions of how future variants and mutations are dealt with by the authorities, and whether the airlines can even hope to prosper given the stop-start nature of the present recovery.

“In addition, the propensity of consumers to travel is under renewed pressure, as some will decide on the safe option of not travelling at all. At the same time, cash burn for airlines remains and with even part of the fleet standing idle there is little room for manoeuvre in raising revenues to combat the costs incurred to date."

6.50am: Market revival set to be cut short

The FTSE 100 will fall out of bed on Tuesday and wipe out the previous day’s dead-cat bounce, as financial markets begin what is likely to be an especially volatile few weeks of omicron-related whipsawing.

London’s blue-chip index will plummet almost 90 points, spread betters in the City predict, following a rebound of 66 points at the start of the week after the 266-point cratering at the end of the past one.

Overnight, Wall Street’s big three equity indices advanced, but Asian markets are all bathed in red this morning.

“Concerns over the Omicron variant appear to be hitting sentiment in Europe more than in the US, which isn’t altogether surprising when you consider that the continent is already struggling to get on top of a sharp rise in Delta cases, even without the problems of dealing with a new variant,” said Michael Hewson at CMC Markets.

After the slight bounce yesterday, he said the cautious positivity has quickly given way to pessimism after comments from the chief executive of Moderna, Stephane Bancel, that existing vaccines face a "material drop" in effectiveness against the omicron variant.

It is likely to take months for pharmaceutical companies to manufacture enough jabs at a sufficient scale to make a difference, he told the FT, due to the high number of omicron mutations.

Markets are on track for a very “choppy” December, driven by omicron headlines, said Jeffrey Halley at Oanda, with the big data releases this week “rendered irrelevant” as it is backwards-looking.

“All that will matter is whether more restrictions are coming back around the world, and whether central banks, especially the Fed, hit the pause button on monetary tightening plans. I already know the answer to that one,” he said.

“The big winner this month will be volatility, we should see plenty of it.

“But with markets selling everything on negative omicron headlines and clasping at the most tenuous of straws to buy everything back on any perceived positive headlines, investors looking for thematic direction moves this month, are likely to be sorely disappointed.”

6.50am: Early Markets - Asia / Australia

Asia-Pacific shares gave up their early gains following a statement from Moderna CEO Stephane Bancel that he expects existing vaccines to be less effective against the new COVID-19 variant.

China’s Shanghai Composite slipped 0.10% while Hong Kong’s Hang Seng index slumped 2.37%.

The Nikkei in Japan declined 1.45% and South Korea’s Kospi dipped 2.08%.

Australia’s S&P/ASX200 closed 0.22% higher at 7256 points as major indices on Wall Street rose overnight after U.S. President Joe Biden said there’s no need for Covid omicron lockdowns for now.


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