The Daily Update: Omicron Warning

Stéphane Bancel, the chief executive of Moderna, warned yesterday in an interview with the Financial Times that existing vaccines will be much less effective at tackling the Omicron variant of Covid-19 than earlier strains. He believes it would take months before pharmaceutical companies can manufacture new variant-specific jabs at scale. Bancel said the high number of Omicron mutations on the spike protein, which the virus uses to infect human cells, and the rapid spread of the variant in South Africa, suggested the current crop of vaccines may need to be modified next year. He did not mince his words, saying, “There is no world, I think, where the effectiveness is the same level we had with the Delta variant”, adding, “I think it’s going to be a material drop. I just don’t know how much because we need to wait for the data. But all the scientists I’ve talked to are like, ‘This is not going to be good’,”.

We also had Pfizer Inc.’s top executive Albert Bourla telling Bloomberg TV that his company will know within two to three weeks how well its Covid-19 vaccine holds up against the new omicron variant, however, even in a worst-case scenario he expects the existing formula will retain some efficacy against the heavily mutated strain. The company is currently conducting lab tests to see how antibodies generated by the existing vaccine work against the new variant he said.

More disturbingly was a Bloomberg article from South Africa last night, about how about 10% of hospitalisations in the country are children under the age of 2. Waasila Jassat, public health specialist at National Institute for Communicable Diseases said that part of the increased rate of admissions may reflect extra precaution on the part of parents given the new concern about the mutation. Fingers crossed that is the case. A paediatric report due later this week should provide more information.

Jerome Powell will later today warn that Omicron threatens both sides of the Fed's mandate. In prepared testimony for the U.S. Senate Banking Committee he will tell Congress the variant's emergence poses “downside risks to employment and economic activity and increased uncertainty for inflation”, adding “Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labour market and intensify supply-chain disruptions”.

Powell's concerns come after Biden urged Americans not to ‘overreact’ to the new strain. “This variant is a cause for concern” he said, however, it was not a cause ‘for panic’. A spokesperson said the White House doesn't yet believe new vaccine formulations will be necessary but is working with Pfizer and Moderna.

After the warning markets have very much been in a risk-off mode. European bourses are opening a sea of red following those in Asia. Treasuries are bid and WTI is trading nearly $16 off its high earlier this month. Swap markets are now signaling around two quarter-point Fed hikes for 2022, down from the three seen before the omicron flared up.