Yield rebound, US stock futures pare losses as ‘Omnicron’ fears ease

• US 10-year Treasury yields, S&P 500 Futures consolidate the biggest daily losses since early pandemic days.
• Comments from US NIH officials, Israel help to cut back on the covid variant fears.
• Fed’s Bostic rejects challenges to Fed’s rate hike, ECB’s Lagarde got reason to defend easy money policies.
• Speeches from US President Biden, Fed Chair Powell will be the key.

Having witnessed a large risk-off move in the market’s response to the South African origin COVID-19 variant, sentiment improves during early Monday as health officials from the US and Israel placate fears of a widespread outbreak of the deadly virus strain.

Having identified zero cases of the fresh COVID-19 infections in the US, the National Institutes of Health (NIH) officials renewed hopes that the virus vaccines, as well as the booster doses, can help overcome the latest challenge to the global economy. On the same lines were comments from Israeli Professor Dror Mevorach who terms ‘Omnicron’ as less severe than the ‘Delta’ version of the coronavirus.

It’s worth noting that Australia and Canada become the latest among the top-tier economies to announce fresh infections relating to the stated virus variant, preceding the UK, Italy, Belgium and Israel.

Following the initial breakout from South Africa, the World Health Organization (WHO) termed the covid strain as “a variant of concern” while also dubbing it as ‘Omnicron’. The risk appetite roiled the previous day after multiple countries raised concerns over the fresh version of the coronavirus, especially at the time when the major central banks were expected to announce monetary policy tightening. The same weighed down the yields and equities while also taking the US Dollar Index (DXY) to the south, making the Japanese yen (JPY) the winner among the G10 currencies.

However, recent comments from Atlanta Federal Reserve President Raphael Bostic reject market talks that the virus strain will ease inflation fears by saying, “Covid is the source of inflation.” On the contrary, European Central Bank (ECB) President Christine Lagarde said, "There is an obvious concern about the economic recovery [of the euro zone] in 2022, but I believe we have learned a lot.” ECB’s Lagarde adds during the interview to Italian news, per Reuters, “We now know our enemy and what measures to take. We are all better equipped to respond to a risk of a fifth wave or the Omicron variant".

Given the mixed chatters over ‘Omnicron’, market players are likely to stay on the current path of consolidating Friday’s losses ahead of the key speeches from US President Joe Biden and Federal Reserve (Fed) Chairman Jerome Powell.