SYDNEY- Asian share markets fell and oil prices slid on Monday as surging Omicron COVID-19 cases triggered tighter curbs in Europe and threatened to swamp the global economy into the New Year.
Beijing lightened the mood a little by cutting one-year loan rates for the frost time in 20 months, though some had hoped for an easing in five-year rates as well.
Chinese blue chips still dipped 0.4 percent, while MSCI’s index of Asia-Pacific shares outside Japan fell 0.8 percent. Japan’s Nikkei dropped 1.7 percent and South Korean stocks 1.2 percent.
S&P 500 futures shed 0.8 percent and Nasdaq futures almost 1 percent. EUROSTOXX 50 futures lost 1.1 percent and FTSE futures 1.0 percent.
The spread of Omicron saw the Netherlands go into lockdown on Sunday and put pressure on others to follow, though the United States seemed set to remain open.
“Omicron is set to be the Grinch who stole Europe’s Christmas,” said Tapas Strickland, a director of economics at NAB. “With Omicron cases doubling every 1.5-3 days, the potential for hospital systems to be overwhelmed even with effective vaccines remains.”
While coronavirus restrictions cloud the outlook for economic growth, they also risk keeping inflation elevated and turning central banks yet more hawkish.
It was notable that Federal Reserve officials were openly talking of hiking rates as soon as March and of starting to run down the central bank’s balance sheet in mid-2022.
That is even more drastic than implied by futures, which had been well ahead of Fed intentions until now. The market has only priced in a 40 percent chance of a hike in March, with June still the favored month for lift off.
Such hawkish chatter from the Fed is a major reason why long-dated Treasury yields fell last week as the short-end rose. That left the two-10 year curve near its flattest since late 2020, reflecting the risk that tighter policy will lead to recession.