Wayne Cole

SYDNEY, (Reuters) – Asian shares markets dropped and oil prices fell on Monday due to tighter European restrictions. The Omicron case surge prompted more restrictive measures in Europe. This could have a negative impact on global economic growth for the New Year.

Seasonal liquidity issues led to a very bumpy start. Nasdaq futures dropped 0.6% and Nasdaq fell 0.7%.

MSCI’s Asia-Pacific broadest index, which excludes Japan, fell 0.4% to 0.7%.

Omicron spread saw the Netherlands put under lockdown Sunday. This placed pressure on other countries to do the same, even though it seemed that the United States would remain open to all.

“Omicron is set to be the Grinch who stole Europe’s Christmas,” said Tapas Strickland, a director of economics at NAB. Omicron case numbers are expected to double every 1.5-3 days. This means there is still the possibility of hospital systems being overwhelmed, even with vaccines that work.

Coronavirus restrictions may cloud economic growth prospects but they can also increase inflation and turn central banks even more hawkish.

It was striking that Federal Reserve officials spoke openly about increasing interest rates by March and starting to reduce the balance sheet of the central bank in mid-2022.

It is much more severe than the futures implied. They had always been ahead of Fed intentions. Markets have only estimated a 40% likelihood of an increase in March. June remains the preferred month for liftoff.

This Fed hawkish talk is one reason why long-dated Treasury yields dropped last week while the short-end increased. The two-ten year curve was at its lowest point since late 2020. This is a sign of the possibility that tighter policy could cause recession.

BofA economists view this risk as a reason for being bearish on equity, even though their recent survey of fund managers showed that just 6% anticipated recession next year. Only 13% thought they were overweight stocks. Many remain overweight in technology, with long tech still being regarded as the most crowded trade.

It was also pointed out that the 2021 winners were oil, with an increase of 48% and REITs, at 42% respectively, Nasdaq, at 25%, and banks, with 21%. The losers were biotech, which saw a 22% drop, as well as silver, 19%, and JGBs, 10%.

It was also the highest year since 1996 for commodities, but the worst since 1949 for global government bonds.

Yields on U.S. 10-year Notes fell to 1.38% early Monday and were well below the 2021 peak of 1.776%.

After Friday’s 0.7% increase, the Fed’s hawkish turn and safe-haven flows supported the close to its highest level for the year at 96.665.

Euro was at $1.1241, after losing 0.8% on Friday. This threatened its $1.1184 low for the year. Japanese yen maintains its safe-haven status and is currently at 113.63 USD.

Sterling dropped to $1.3228 due to Omicron fears, which erased all gains after the Bank of England surprised rate hike last week.

The gold price was $1,801 per ounce. This is after it had broken its five-week losing streak.

Omicron-related spread worries about fuel shortages and oil prices fell.

A barrel dropped from $1.56 to $71.96, and a barrel lost $1.43- $69.43