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Nobody will admit it, but you can be sure that the emergence of the Omicron variant of the coronavirus made some people in the finance ministry breathe a sigh of relief even as it sent financial markets tumbling across the world; because it also deflated oil and left it $10 per barrel weaker for November. The prospect of depressed commodity prices for the immediate future, not another round of global demand destruction and lockdowns, dominated press conferences and high-level tweets. The government clearly thought restricting the debate to oil prices, and the likely relief to the current account, was a good idea to deflect attention away from the bad press about all the prior conditions and bailout loans and runaway deficits, inflation, etc.

And you can’t blame it for trying, even if taking this line amounted to deliberately downplaying the possible impact on the local economy, despite cheaper oil. But it was not to be. It turns out that Omicron isn’t all that everybody made it out to be. Initial medical results show that while it certainly spreads a lot faster than other variants, it is not any more harmful than any other strain. In fact, it could be milder than the rest. This is just an initial analysis, of course, since Omicron is a very new arrival on the scene and there’s nothing to prevent it from mutating further or even making way for a deadlier variant. But results so far have sufficed to change the mood of the market once again and the panic that came to Planet Finance over the last couple of weeks has pretty much already been priced out of it.

Markets have been up again since Monday after last week’s rout with indexes rising across the Atlantic and Asia-Pacific regions, leaving only Asia proper somewhat mixed. Stocks that were collapsing just last week were among market leaders once again. Cruise lines Norwegian (NCLH), Carnival (CCL), and Royal Caribbean (RCL), along with airlines United (UAL) and American (AAL) led the gains in the S&P 500. Bond yields also spiked in the US as investors pulled money away from Treasury and into equities. European stocks also raced to their highest in more than a week. The dollar is also weaker this week as traders felt confident piling into riskier currencies now that Omicron is fast becoming a thing of the past; for financial markets at least. The dollar index (DXY), which measures the greenback against six most actively traded currencies, was down 0.1pc from its 16-month peak in November. The risk-sensitive Aussie dollar (AUD/USD) rose 0.6pc on Tuesday, on top of its best percentage gain for seven weeks on Monday, after the Reserve Bank maintained record-low interest rate and brushed off any more disturbances from Omicron.

And, of course, oil is right back up with Brent crude trading at $73.42 a barrel on Tuesday on the back of diminished Omicron worry and failed indirect US-Iran nuclear talks, which rules out the possibility of Iranian crude flooding the market and reducing prices anytime soon. In fact Saudi Arabia, the so-called central bank of black gold, is so confident about rising oil demand and tight supply that it raised the selling price of its flagship Arab Light to a near two-year high over the weekend.

It’s interesting that financial markets were the first to call Omicron’s bluff. It started last week when investors bid down the share price of Zoom Video Communications (ZM), one of the darlings of the pandemic. Its stock suffered after a weak earnings report a few weeks ago but recovered around Black Friday as Omicron fears deepened. Yet options traders continued to position themselves for further drop in the stock value. Even though open interest leaned only slightly in favour of puts, the implied volatility suggested that most near-term call options were being sold; a bearish outlook that showed that the options market did not feel Omicron would force lockdowns strong enough to require large-scale remote working again.

So, as the threat of yet more Covid trauma recedes, the spotlight is back on countries with current account headaches, trade imbalances and out-of-control (imported) inflation. And now there would be no more tweets about sanitised commodity prices to soothe sentiment either. With nothing to suggest a rise in exports and revenue or a fall in inflation and unemployment in the near term, it seems the government is condemned to sit back and watch the global recovery bid up oil and ruin its plans for its own economic and political survival - the election is pretty close, after all. It’s no surprise that Omicron would have felt good to a few people, even if for the smallest moment.

Copyright Business Recorder, 2021

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