European stocks advanced on Monday after a sell-off at the end of last week triggered by the Omicron coronavirus variant, as investors settled in for a prolonged period of uncertainty over the pandemic.
Europe’s Stoxx 600 rose 0.7 per cent in early dealings, recovering from a fall of more than 3.5 per cent on Friday. London’s FTSE 100 rose 0.7 per cent and Germany’s Xetra Dax rose around 0.5 per cent.
Meanwhile, futures contracts tracking the US S&P 500 index added 0.6 per cent after the broad US stock gauge fell 2.3 per cent on Friday. In early November the S&P had traded at record highs as investors focused on strong corporate earnings.
Analysts cautioned that markets would remain volatile, however, as investors waited for more information on the potential of the new variant to alter the path of economic growth.
“Over the course of this year we’ve had an impressive equity rally, with constant new highs printed, so when we have had pullbacks there’s been money on the sidelines to buy the dip,” said Paul Leech, co-head of global equities at Barclays.
“But we haven’t seen a huge amount of that today as people need more information, they are holding out for more clarity.”
Brent crude, the international oil benchmark, rose 4.4 per cent to $75.88 a barrel, having lost more than 10 per cent on Friday in its largest fall since April 2020. The Stoxx travel and leisure index gained 3.4 per cent.
But as caution persisted, the euro weakened and European government bond prices were mostly unchanged from Friday’s levels, when revelations about Omicron sparked a rush into assets traditionally seen as carrying lower risk. The Vix, a measure of expected volatility on the S&P 500, remained elevated at a reading of around 25.
“It will be at least two more weeks before more will be known as scientists around the world build a better understanding of the new variant and as the severity of infections becomes clearer,” analysts at Moody’s Analytics said.
Scientists believe Omicron may be more transmissible than the highly infectious Delta variant and carries mutations that could make it resistant to vaccines.
The World Health Organization cautioned on Sunday that it was “not yet clear” whether the severity or transmissibility of Omicron differed from previous strains.
The euro fell 0.5 per cent against the dollar, to purchase $1.126, after Omicron cases were discovered in the Netherlands and France and calls for renewed lockdowns grew louder in Germany.
The yield on Germany’s 10-year Bund ticked 0.01 percentage point higher to minus 0.324 per cent. Italy’s equivalent bond yield was steady at 0.974 per cent.
The yield on the US benchmark 10-year Treasury note, which moves inversely to its price, gained 0.03 percentage points to about 1.52 per cent after falling the most since March 2020 on Friday.
Asian stock markets remained under pressure, reflecting expectations governments in the region would react to Omicron with renewed travel and other curbs. Japan on Monday announced a ban on foreign citizens from entering the country, reversing a three-week old relaxation of its rules. The Topix in Tokyo closed 1.8 per cent lower and Hong Kong’s Hang Seng index fell 0.9 per cent.
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