Macro Insights Weekly: Another coronavirus mutation scare
- Early data have justifiably alarmed policy makers, eliciting almost-immediate response
- The market’s reaction was a reprise of every time this pandemic has taken a turn for the worse
- The policy dimension is however unlikely to follow a typical pandemic surge
- A large-scale fiscal and monetary response is not feasible
- Slowing down the pace of normalisation may be the only option
Over the last couple of trading sessions, global markets have turned decidedly defensive as the B.1.1.529 strain (named Omicron) of the SARS-Cov-2 variant has become a source of concern. Spreading presently, at an alarmingly rapid pace, in Botswana and South Africa, the strain appears to be even more transmissible than the Delta variant, based on sequencing data of cases tracked so far.
There are three areas that scientists are focus on virus mutations—(i) what is the viral load of the infection; (ii) how easily does the strain bind with body’s cells in the respiratory system; and (iii) can it evade the body’s immune defenses.
The hope is that substantial progress in vaccination worldwide will limit the mutations, but ironically, as immunity is built up, the possibility of a mutation that erodes vaccine efficacy also rises as the virus faces the choice of evolving or going extinct.
Early data have justifiably alarmed medical health professionals and policy makers, eliciting almost-immediate response, choosing to err on the side of caution. We can expect that some of the recent easing of mask mandates, testing, and quarantine will be reversed, at least for a few weeks till the lethality of the Omicron variant is established. Tests are taking place in major labs worldwide to also see the extent which can break-through the immune defence system, especially if built up through the vaccination process. A strain that is not combatted adequately by current vaccines would be worrisome, resulting in waves to stringent measures on mobility until effective boosters with new formulations are developed.
This is where the challenge lies—the weeks necessary for medical professionals to gather the requisite data, carry out their analysis, and craft an adequate response to the latest chapter of this pandemic would be marked by uncertainty for both policy makers and markets. Countries may even go so far as to reinstate travel bans to contain the spread of the Omicron strain, but past experience already show that this would likely be futile. A pandemic’s global dimensions are all but impossible to ignore, as country after country with remote location and/or prolonged policy stringency have found to their regret. May the key reminder from the Omicron spread would be to recognise the need for a globally synchronised response to the pandemic.
Friday’s market response was along the lines of selling re-opening stocks and commodities, buying pharma and home office equipment and services producers, rushing for government bonds and the US dollar, cutting back on speculation (including cryptos), and shying away from the in-vogue reflation trade.
This market reaction could be seen as basically a reprise of every single time this pandemic has taken a turn for the worse. The policy dimension is however unlikely to follow a typical pandemic surge. Unlike the past episodes, governments are not going to jump in large scale support measures, given the prevalence of high debt and inflation at the current juncture. They may be compelled to slow down the pace of normalisation, as anticipated by the fixed income market’s rapid paring back of rate hike expectations in 2022 and beyond.
To read the full report, click here to Download the PDF.
Subscribe here to receive our economics & macro strategy materials.
To unsubscribe, please click here.
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). This report is intended for “Accredited Investors” and “Institutional Investors” (defined under the Financial Advisers Act and Securities and Futures Act of Singapore, and their subsidiary legislation), as well as “Professional Investors” (defined under the Securities and Futures Ordinance of Hong Kong) only. It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong SAR
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.