The rapid spread of the new Omicron strain of coronavirus has not just overwhelmed the healthcare infrastructure across the globe, but also made financial markets in the United States anxious about stagflation - that awful combination of rising inflation and declining growth.
The pace at which it is spreading – the strain was discovered in Africa earlier this month and nine countries have now reported cases – threatens to disrupt whatever little normalcy the people have seen in recent months.
The World Health Organization (WHO) has categorised Omicron as a “variant of concern” because of the higher risk of infection and the possibility of vaccine evasion. Several countries, including the US, Canada and the UK, announced restrictions on travel from countries in southern Africa.
As the world moved to control the spread of Omicron, the markets showed immediate reaction to the news. Risk assets sold off, including sharp losses in stocks worldwide. The VIX, often thought of as a “fear index,” surged nine points to more than 27 on Friday. Oil prices fell more than 10 per cent. Meanwhile, yields on US government bonds, including a 16 basis points decline in the 10-year Treasury, registered their biggest one-day move since last year.
{{/usCountry}}As the world moved to control the spread of Omicron, the markets showed immediate reaction to the news. Risk assets sold off, including sharp losses in stocks worldwide. The VIX, often thought of as a “fear index,” surged nine points to more than 27 on Friday. Oil prices fell more than 10 per cent. Meanwhile, yields on US government bonds, including a 16 basis points decline in the 10-year Treasury, registered their biggest one-day move since last year.
{{/usCountry}}A noted economist told Fox News that the rapid spread of Omicron could exacerbate supply chain woes and amplify record-high inflation pressures.
“Those two things together: lower growth, high inflation are stagflation, and that’s what the market is worried about right now,” said Mohamed El-Erian, the chief economic adviser for financial services firm Allianz.
“I think it’s time for a change in policy at the Fed... inflation is not transitory and it’s really important for the Fed to realise this,” he added.
Omicron was first discovered in samples from southern Africa earlier this month. As more and more scientists started studying the latest world-threatening infection after Delta, it emerged that Omicron contained more than 30 mutations - the highest till date in any of the variants of coronavirus.
Scientists have expressed hope that the existing armoury of vaccines should be able to control the spread of Omicron, research is on to find more effective vaccines and booster shots.