US stock futures recover from shock Omicron case in California; oil rises ahead of key OPEC+ meeting

Ship heading into storm
Stock market volatility is at its highest since the start of the year, as investors weigh up the impact of the Omicron variant. Anton Petrus/Getty Images
  • US stock futures rose, shaking off the initial shock of the first US case of Omicron, while oil gained.
  • OPEC+ is meeting Thursday to discuss crude-supply policy against a backdrop of uncertainty over the variant.
  • Federal Reserve boss Jerome Powell’s hawkish comments on monetary policy continued to reverberate across markets.

US stock futures rose Thursday, shaking off the previous day’s slide after the US detected its first case of the Omicron variant, while oil prices lifted off three-month lows ahead of a key meeting of the Organization of the Petroleum Exporting Countries.

The Centers for Disease Control and Prevention said Wednesday that a fully vaccinated adult in San Francisco had tested positive for COVID-19 with the variant, with mild symptoms, after returning from South Africa on November 22.

The World Health Organization has already said at least 23 countries have reported cases of Omicron, and it expected “that number to grow.” 

The news sent a shiver through financial markets Wednesday. On Thursday, it dented shares across Europe as markets played catch-up, but left US and Asian equity market sentiment unscathed. 

US stock index futures were up across the board, with S&P 500 futures gaining 0.6%, Dow Jones futures rising 0.7%, and Nasdaq 100 futures 0.4% higher. The three benchmarks closed more than 1% down the day before, when the US case of Omicron surfaced.

“Yesterday’s market reaction gives a flavour of how fickle and fragile sentiment currently is, despite the various reassurances from the likes of the WHO, as well as many of the vaccine companies, including BioNTech and Oxford University who came up with the AstraZeneca jab,” CMC Markets strategist Michael Hewson said.

In Europe, the Stoxx 600 was down 1.2% in early trade, along with most regional benchmarks. In Asia, the MSCI Asia ex-Japan index rose 0.4%.

Meanwhile, crude oil rallied ahead of Thursday’s meeting of OPEC and its partners to discuss supply policy. Given the recent drop in the crude price to three-month lows and the as-yet unknown impact to demand from the spread of the Omicron variant, there is greater uncertainty than usual over what the group of major oil producers will decide regarding output.

“The potential for a significant shift in demand if Omicron sparks new lockdowns does alter the state of play significantly, but the most likely outcome does still remain another 400k bpd increase in production,” strategists at broker IG said in a daily note.

Brent crude futures were up 1.3% at $US69.75 ($AU98) a barrel. WTI, futures, which tend to be less sensitive to OPEC output, were up 1.5% at $US66.50 ($AU93) a barrel. Both contracts lost around 17% in November, for their biggest one-month drop since April last year. 

US gasoline futures were up 1.8%, having gained nearly 42% so far this year, which has added to politicians’ and central bankers’ concerns about more entrenched inflation. 

Federal Reserve Chair Jerome Powell has long maintained that the high rate of increase in consumer prices would be transitory. But with a labor shortage pushing up wages, and the cost of goods from food to second-hand cars rising, Powell has changed his tone.

On Tuesday, he said the Fed’s policy-makers would discuss accelerating the winding-down of its bond purchases — a step investors perceive as immediately preceding a rate hike. Markets are currently pricing in at least two rate rises in 2022, starting around June.

“This raises an interesting, broader, point. Given that the Fed wants to quicken the policy normalization process, how will other G10 central banks react?” Michael Brown, a strategist at Caxton FX, said.

“Either they will act as sheep and follow suit, bringing the ‘easy money’ era to a sooner end than had previously been expected, posing a headwind to risky assets; or, they will stick to the status quo, putting rocket boosters under the dollar in the process,” he added.