Omicron variant: relieved, the CAC 40 returns to the top

Posted on Dec. 2021 at 19:25Updated Dec. 7 2021 at 19:34

More fear than harm. While the discovery of the Omicron variant – on November 26 – had plunged world stock markets, the first reassuring statements about its lesser severity fueled the market rebound on Tuesday. After an increase of 1.48% on Monday, the CAC 40 returned to 7,000 points on Tuesday. It even signed its biggest increase of the year, advancing 2.91% to 7,065.39 points, and thus approaching its all-time high.

After a particularly turbulent week during which the Paris index had experienced its largest drop in a year, investors seem to be making a 180-degree turn. In Europe, the Eurostoxx 50 rebounded 3.36%, while the DAX in Frankfurt ended up 2.82%. At the time of the close in Europe, Wall Street was also celebrating. The S&P 500 climbed 2.09% to flirt with its all-time high, while the Nasdaq gained more than 3%.

Tech and semiconductors in the lead

The markets were clearly reassured by the statements, Sunday evening, of Dr. Anthony Fauci, adviser to the White House, which affirmed that the signals concerning the gravity of the Omicron variant were “a little encouraging”. Supported by data collected in South Africa that the variant may cause fewer severe forms than previous waves, they have encouraged investors to go back to buying.

Sign of a certain appeasement, the VIX index, nicknamed the fear index because it tends to rise in times of tension, had lost Tuesday nearly 13 points compared to its peak of 35 points reached on Friday.

This renewed optimism was also supported by the economic situation in China, where imports rose 31.7% in November, which is much more than expected. The drop in the reserve ratio imposed on banks, announced by Beijing on Monday, was also welcomed by investors because it should help support activity.

“With sustained economic activity in China, less severe restrictions than could be feared in terms of health, and relatively few alternatives in an environment of low interest rates, equities took full advantage of the movement,” explains Gilles Guibout, head of European actions at AXA IM.

The heavyweights of tech and semiconductors in particular rebounded on the stock market. In Hong Kong, Alibaba took no less than 12.24%, while in Paris, STMicroelectronics climbed 5.68%. ASML, one of the industry leaders in Europe, gained more than 8%. Luxury also benefited greatly from the enthusiasm of investors: Kering and LVMH grew by more than 5%.

Eyes on central banks

However, be careful not to be too “light” about the good news on Omicron, warns Tangi Le Liboux of Aurel BGC in a note. “In the coming weeks, the markets will remain exposed to news about the variant,” warns Gilles Guibout.

Investors will also remain attentive to statements from central banks, adds the latter. A faster than expected change in monetary policy could have an effect on the markets. “The Fed could accelerate the pace of extinguishing its quantitative easing in the first quarter of 2022 in order to prepare for its first rate hike, but there are many uncertainties regarding the pace of the tightening”, warns Simona Mocuta, chief economist by State Street Global Advisors.

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