Omicron Fears Subside as Cases Climb

Risk-on as investors’ omicron fears subside. Although omicron is spreading faster than wildfire, news on its mild symptoms is currently trumping the exponential rise in cases. Equities grinded higher with both the S&P and DJIA closing on record highs as investors view any omicron economic impacts will be short-lived. A weak 7-year Treasury auction (sold at a high yield of 1.48%, 2 bps higher than the 7-year yield pre-auction) coupled with dwindling fears of omicron sent rates higher across a steepening curve. The 10-year U.S. Treasury yield increased 8 bps to breach its 50-day moving average to close at 1.56%.

Worldwide COVID cases above 1 million for the second consecutive day straining supply chain. The World Health Organization warned of a “bumpy” road ahead as COVID is unlikely to go away any time soon. The current silver lining to rising cases is deaths from COVID continue to decrease. Over the past week, the U.S. has seen a 60% rise in cases, but a 7% decrease in deaths due to COVID. However, the highly transmissible omicron is putting additional stress on an already fragile supply chain. Over the past 24 hours, Samsung announced one of its chip production lines in China will be adjusted to comply with China’s zero tolerance policy. Investors will be watching for similar actions from other manufacturers in the coming weeks.