The Australian share market fell marginally in value for the month of November (although will open lower today following overnight falls in the United States), with the All-Ordinaries index closing the month 0.7% lower at 7,587.4 points.
The Australian Dollar fell sharply by 5.1% in the month, with one Australian Dollar currently buying 71.30 US cents. The Reserve Bank of Australia (RBA) held the official Cash Rate at 0.1% per annum in November (unchanged since August last year), with the RBA board due to meet again next Tuesday before breaking until February next year.
Global share markets were weaker in November with declines in value recorded late in the month. The United States Dow Jones index fell by 3.7%, the London FTSE fell by 2.5%, the Japan Nikkei 225 fell by 3.7% and the Hong Kong Hang Seng Index fell by 7.5% for the month.
Investment markets were coasting along for much of November before being hit last Friday by concerns over a new COVID variant – Omicron. In addition to concerns over Omicron, there are market concerns surrounding the United States Federal Reserve monetary policy tightening to bring inflation down. Overnight Federal Reserve Chairman Jerome Powell said:
"...the economy is very strong and inflationary pressures are high, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner."
With the above comments, the United States S&P 500 and Dow Jones Index both fell 1.9%. The tech-heavy Nasdaq Composite slid 1.6%. Despite the remarks in relation to the strength of the United States economy, investors are focused on potential changes to the United States monetary policy (which has supported the stock market rally) coupled with concerns over the new Omicron COVID variant.
While new COVID variants emerge regularly, what jolted markets was the World Health Organisation’s (WHO) decision to label it yet another ‘variant of concern’ – due to its apparent speed of transmission so far and the unusually high number of mutations on its ‘spike protein’ – which raises the risk of it being more resilient to current vaccines.
Omicron is the fifth ‘variant of concern’ identified so far by the WHO – following Delta, Alpha, Beta and Gamma. What ultimately matters for markets is not new COVID variants, but whether enough countries (especially the United States) feel the need to re-impose mobility restrictions or lockdowns.
For more lockdown restrictions this to happen, Omicron needs to be not only highly transmissible (which is likely the case), but also vaccine resistant (which is possible, though we cannot yet be sure), and cause severe symptoms that could quickly overwhelm hospitals. We should learn more on the severity of Omicron within days, noting the history of viruses is that they usually get more transmissible but less severe over time.
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This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives.