By Lewis Krauskopf

NEW YORK, (Reuters) – Omicron’s emergence is creating uncertainty on the markets as investors wait for information about this highly mutated coronavirus variation and assess how it might impact the global recovery.

Omicron appears to be more contagious than other variants. However, researchers still need to determine its effects.

Volatility across the asset markets has increased in the past few months, thanks to a recent Federal Reserve hawkish turning.

Here are some factors investors are watching to discern Omicron’s impact on the economy and asset prices.

VIEW OF THE VARIANT

Omicron’s potential market impact depends on whether or not it causes severe diseases, is it the predominant strain in the world and how well it responds to current vaccines.

Many are closely watching South Africa, where officials said Omicron is quickly becoming the dominant variant, accounting for 74% of the 249 virus genomes sequenced in November.

It is crucial that the government responds. On Thursday, U.S. President Joe Biden indicated that his plan for fighting COVID-19 did not include any shutdowns.

Graphic: Omicron variant map – https://graphics.reuters.com/USA-VARIANT/zdvxonlxxpx/Omicron.jpg

ECONOMIC ACTIVITY

Omicron’s effect may take some time for traditional indicators to reflect it, but investors are using less conventional measures to get a glimpse of the activity.

TD Securities monitors mobility by monitoring requests for directions to Apple Maps (NASDAQ: Maps), which recently fell below.

The Transportation Security Administration also tracks checkpoints, and records reservations for restaurants and hotels.

Graphic: Apple Maps driving directions requests – https://graphics.reuters.com/USA-STOCKS/MOBILITY/gkplglglavb/chart.png

Wall Street is not the only one trying to predict what kind of pandemic will occur and which impact it might have on growth.

Goldman Sachs’ (NYSE:) “downside scenario” could see global growth slow to 2% for the first quarter 2022. It would be caused by a significant wave of infections that leads to lockdowns. The bank is 2.5 percentage point below its current forecast.

Omicron, according to others could speed up the end of pandemic.

The Omicron virus could be used to help transform an epidemic into something similar to the seasonal flu. JPMorgan (NYSE) strategists.

SENTIMENT

Omicron as well as the possibility for a more aggressive Fed are influencing sentiment among retail investors.

According to the American Association of Individual Investors’ latest survey, 27% of all retail investors have a bullish outlook, down from 48% just three weeks ago.

The level of bearish sentiment was 42.4%. This is its highest point in over a year.

Keith Lerner, Truist Advisory Services’ co-chief investment officer, wrote that uncertainty about Omicron leads to investors being afraid of the worst.

However, some retail investors have taken advantage of recent stock market weakness.

After Friday’s selloff that saw US equities drop to $2.1 billion, Tuesday’s retail net purchase of U.S. stocks hit an all-time high at $2.2 trillion.

Graphic: Bearish investor sentiment rising – https://graphics.reuters.com/USA-STOCKS/INDICATORS/gdpzymqrbvw/chart.png

VOLATILITY

Asset markets are experiencing volatility due to Omicron’s and Fed concerns.

Cboe Market Volatility, also known as Wall Street’s fear gauge, surpassed 30 Wednesday amid several swings in stock price prices.

In recent weeks the market has seen an increase in moves in bonds, due in part to Fed policy uncertainty. The ICE (NYSE) BofA MOVE Index measures the expectations for volatility in bond markets and is at its highest level since March 2020.

As measured by The Currency Market Volatility Index Deutsche Bank (DE) Currency Volatility Indice, nearing its highest point since March 2021.

Graphic: Volatility view – https://graphics.reuters.com/USA-STOCKS/VOLATILITY/mopanqnjbva/chart.png

SAFE HAVENS

Investors have flocked to so-called “haven assets” such as the Japanese and Swiss franc, U.S. government bond and other market fluctuations. In spite of Fed hawkish signals, Treasury yields have declined in the last few days, even though they move in the opposite direction to price movements.

This could be a sign that the markets are still uncertain.

Graphic: Safe haven trades – https://fingfx.thomsonreuters.com/gfx/mkt/jnpweaeadpw/Pasted%20image%201638395226831.png

LOOKING AT LEVELS

To assess market damages, investors also monitor technical aspects.

The Wednesday close was below the 200-day moving median for the first times since July 2020. It could indicate a bearish trend.

Although the benchmark is still above 200 days, it closed Wednesday below its 50-day moving mean for the first time since October mid-October.

Graphic: S&P 500 and key technical levels – https://graphics.reuters.com/USA-STOCKS/INDICATORS/zgvomnmolvd/chart.png