Will Omicron push Safe-Haven assets up?

If there is one thing investors hate is uncertainty. When there are uncertain conditions, investors flock around safe-haven assets. 

What we have witnessed at the end of November and the first three days of December, there’s a slight panic regarding the Omicron, a new COVID variant. 

In this guide, we’ll focus on the impact of Omicron on safe-haven assets. 

The market’s reaction 

Markets began to worry as word of the new variant came. The VIX volatility fears indicator for the stock market rose to its highest level in ten months, while German 10-year rates fell to -0.35 %, the lowest level in two months.

The unifying feature across markets appears to be a squaring of positions as the year comes to a close to safeguard positions in the face of increased uncertainty.

The Dow Jones Industrial Average sank 652.22 points, or 1.86 percent, to 34,483.72, the S&P 500 dropped 88.26 points, or 1.90 %, to 4,567.01, and the Nasdaq Composite plummeted 245.14 points, or 1.55 %, to 15,537.69.

Oil prices have plummeted below USD70 per barrel because of fears about decreased travel throughout the winter, as well as additional COVID waves and limitations. In less than a month, the oil price has dropped by more than USD15 a barrel.

The case for USD

On Monday, November 29, markets calmed slightly, with US stock and oil prices rising as investors adopted a more measured approach, waiting for the impact of the variant to become evident.

The US dollar index climbed 0.2% to 96.367 after suffering its largest one-day decline since May on Friday.

The dollar’s role as a safe haven means it benefits from uncertainty. Still, it dipped on Friday because investors perceived the Omicron strain as potentially influencing the pace of interest rate hikes by the Federal Reserve and other major central banks.

The case for JPY and CHF 

On December 3, the safe-haven yen and Swiss franc rose against major currencies as global stocks and bond rates fell over concerns about the spread of the COVID-19 Omicron variant.

Because of the Japanese yen’s long-standing safe-haven status, the USD/JPY fell by far the most on the day. The dollar fell 0.4% against the yen, reaching 112.75 yen.

Long-term US rates are significantly lower, showing a bond bid that also benefits currencies such as the yen and Swiss franc. The dollar fell 0.2% against the Swiss franc, reaching 0.9179 francs. 

Looking forward, many experts think that the uncertainty surrounding the forex market can push safe havens JPY and CHF up. 

The case for gold 

Gold is the traditional safe-haven asset. For decades, investors have relied on it to help them protect their capital. Precious metals are frequently in high demand during times of crisis.

Gold rose on Friday, December 3, as the New York session came close. It is now trading at $1783.

What’s next?

The panic reaction to the arrival of Omicron last week served as a pivot for investors and markets in general. The objective factors concerning the strain’s health threat and spread and how governments would respond are at stake.

Even if the new virus is less difficult to detect but more easily transmitted, countries may still impose restrictions and closures that stymie global recovery.

If the Omicron strain produces somewhat different results, markets will need time to accept that conclusion. Governments throughout the world are unlikely to dismiss the new variant but rather embrace it to enhance present economic and social constraints.

The plunge in stocks, EUR, GBP, and oil prices are a clear indication that investors are tilting towards the safe-haven assets.