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The stock market was set to open lower after confirmation of the US’s first omicron Covid case triggered a sharp reversal on Wall Street.

The main US equity indices surrendered strong early gains to finish deep in the red as market jitters over the new Covid variant persisted.

ASX futures slumped 79 points or 1.09 per cent, signalling further pressure. The S&P/ASX 200 has fallen on three out of four sessions since the new variant was reported. The benchmark yesterday logged its weakest close in eight weeks.

Wall Street

A rebound session in the US curdled after the nation’s top medical advisor told reporters the new omicron variant had reached American shores. Dr Anthony Fauci said a case had been confirmed in California. Equities immediately sold off. Oil and other risk assets also gave up gains.

The Nasdaq Composite flipped a 1.8 per cent rally into a loss of 284 points or 1.83 per cent. A 520-point advance on the Dow Jones Industrial Average turned into a decline of 462 points or 1.34 per cent. The S&P 500 gave up 54 points or 1.18 per cent.

The White House is expected to announce new travel restrictions tonight. Incoming air travellers are expected to be required to test for Covid within a day of flying.

Travel stocks took the biggest hit. The S&P 500 airlines index dived 5.91 per cent. Boeing tanked 4.94 per cent, Expedia 3.37 per cent and theme park operator Disney 1.86 per cent.

Stocks rallied earlier as Federal Reserve Chair Jerome Powell talked down the impact of reducing central bank support for the economy. Stocks tumbled on Tuesday after Powell surprised investors by telling a Senate committee he favoured accelerating the taper of the Fed’s asset-buying program. In fresh testimony overnight, he said markets had been well prepared for the withdrawal of emergency stimulus measures introduced at the height of the pandemic.

“The taper need not be a disruptive event in markets, I don’t expect that it will be. It hasn’t been so far—we telegraphed it,” he said.

Also helping sentiment were strong November private payrolls. The ADP report showed the private sector hired another 534,000 Americans, ahead of the consensus 506,000 jobs predicted by economists polled by The Wall Street Journal. A separate report on manufacturing met expectations

Michael Hewson, chief market analyst at CMC Markets UK, said the reports reinforced “the narrative that the U.S. economy is ticking along just fine”.

Australian outlook

US stocks performed an abrupt volte-face overnight upon the discovery omicron had reached the US. Given that development could have been foreseen, in fact was almost inevitable, the market reaction appears extreme. That suggest the bears have seized control of this jittery market.

If US investors were genuinely fearful of further lockdowns, they would have bought pandemic-resistant Big Tech. Instead, the three Big Tech sectors (tech, communication services, consumer discretionary) were among the night’s worst performers. That implies the selling was more about locking in huge profits from the 2020-2021 rally in growth stocks.

Investors are in no mood to surrender the profits of the pandemic-era bull market. Even after recent ructions, the S&P 500 is up more than 20 per cent for the year. The Dow and Nasdaq are also sitting on double-digit gains. At least part of this downturn is likely to be seasonal as the US tax year nears its conclusion.

“I think a lot of it is tax loss selling. I think a lot of the poor names are doing worse because people are taking tax losses because they have so many gains elsewhere,” Steve Massocca of Wedbush Securities said.

The S&P/ASX 200 has bounced twice off the 7200 level this week and looks set for another test this session. The index fell as much as 73 points in morning trade yesterday before trimming its loss to 20 points. Investors have so far been willing to buy the dip, but each retest makes a break lower more likely.

A decline in long-term interest rates encouraged a modest US rotation into bond proxies. The night’s best-performing sectors were utilities +0.16 per cent, health -0.19 per cent and consumer staples -0.41 per cent.

The biggest hits landed on communication services -1.99 per cent, consumer discretionary -1.86 per cent and industrials -1.43 per cent. Tech dropped 1.26 per cent, financials 1.1 per cent and materials 1.09 per cent.

Back home, monthly retail sales and trade data are due at 11.30 am AEDT.

Solomon Lew’s Premier Investments holds its annual general meeting today.

IPOs: Close the Loop lists at 12 pm AEDT. The company collects and recycles batteries.

The dollar fell below 71 US cents as the US sell-off accelerated. The Aussie was lately down 0.4 per cent at 70.97 US cents.

Commodities

A rebound in oil rolled over as the first case of omicron in the US sharpened lockdown fears. Brent crude settled 36 US cents or 0.5 per cent lower at US$68.87 a barrel. The US benchmark ended 61 cents or 0.9 per cent in the red at US$65.57 after trading as high as US$69.49.

The OPEC+ oil cartel meets tonight to discuss production. Oil prices have come off sharply in the last week despite the possibility the group may pause monthly increases in output until the demand hit from omicron is clearer.

“We are still in a wait-and-see mode with the severity and impact of the new COVID strain,” Tariq Zahir, managing member at Tyche Capital Advisors, said.

BHP and Rio Tinto advanced in European trade, then retreated in the US as the market mood turned. BHP‘s US-listed stock sank 1.85 per cent after its UK-listed stock put on 0.39 per cent. Rio Tinto shed 0.85 per cent in the US and gained 1.72 per cent in the UK.

Iron ore remained a bastion of calm relative to the rest of the commodities spectrum. The spot price for ore landed in China rose US$1.30 or 1.3 per cent to US$101.40 a tonne.

Gold attracted haven buying as equities and treasury yields declined. Gold for February delivery settled US$7.80 or 0.4 per cent higher at US$1,784.30 an ounce. The NYSE Arca Gold Bugs Index fell 2.89 per cent.

Copper fell to its lowest in almost two months in US trade after the world’s biggest producer warned of weaker prices next year. Codelco’s CEO forecast a surplus and a 9 per cent decline in prices next year, due to soft Chinese demand. March copper dropped 1.4 per cent to US$4.23 a pound on Comex.

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