Caution on Omicron transmission claims

Investors are in a cautious mood once more, after stock markets bounced back strongly at the start of the week on reports that omicron symptoms are less severe than feared.

While that comes as a relief and will hopefully remain the case as more evidence is gathered, it’s also being reported that it’s far more transmissible than delta, perhaps 4.2 times more. There’s still too much to learn about the variant to make firm conclusions but what we’re seeing is already enough for governments to be imposing new restrictions.

That doesn’t bode well for the economy in the near term, at least, and raises plenty of questions about what the coming months will bring. Light touch restrictions are being imposed and the hope is that boosters will negate the need for anything harsher but that is far from certain.

Then it becomes a question of what we can expect from the monetary and fiscal authorities. Central banks are fighting high inflation as a result of the restrictions from the last 18 months; faced with more measures and higher price pressures, we can’t expect more from them. Public debt has also grown substantially which may also make governments far more reluctant to announce sweeping support measures. Just a couple of many unknowns over the coming months that investors may have to grapple with.

Evergrande and Kaisa in default

Fitch Ratings has officially downgraded Evergrande and Kaisa to restricted default after failing to make an USD 82.5m coupon payment before the expiration of the grace period and a USD 400m dollar bond repayment, respectively. The agency is the first to do so but others will now likely follow which will turn attention to the restructuring process after months of eleventh-hour payments.

The markets are remaining remarkably calm to the news as Chinese authorities have stepped in to manage the fallout. From becoming involved in the process to the PBOC cutting the RRR in order to provide extra liquidity for the market, and more, a managed restructuring is now underway. Whether it will be enough, only time will tell. But investors are taking it in their stride.

Bitcoin could suffer more but enthusiasts won’t be concerned

Bitcoin is back below USD 50,000 and struggling to get any real traction above as risk appetite cools. It doesn’t bode well for the cryptocurrency in the near term and as we’ve seen so often in the past, corrections can be deep and painful. But as we saw earlier this year, it has the ability to rebound quickly and scale new highs once more. Crypto backers won’t be put off by the latest declines any more than they were in May.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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